5 myths about green investing

It’s not profitable, it’s only for the "do-gooders” and it’s complex. Is this really the case? Take a look at five myths about green investing to help you make more informed decisions.

There are misconceptions that prevent investors from properly exploiting the opportunities that green investing can offer. These are the top five myths. 

1. Green investing is less profitable

One of the most persistent myths about green investing is that choosing sustainable companies and funds means sacrificing financial returns for the environment. However, sustainable funds are competitive in terms of profitability due to their performance track record. Morningstar figures show that the success rates of sustainable equity funds have been consistently high over several periods, with returns outperforming funds with lower sustainability requirements. According to a 2019 analysis, sustainable funds also outperformed their traditional peers in the category.

[Source: Morningstar]

In addition, these companies tend to be better prepared to deal with the financial risks associated with environmental, regulatory and social issues, which can help to protect capital. Green investing is also an opportunity to be on the right side of the technological and market changes that will revolutionise the future.

2. Green investing is only for the do-gooders

While many sustainability-focused investors are strongly committed to environmental and social causes, this is not the only motivation for green investing. In fact, sustainable investing attracts a wide range of investor profiles, including those who are primarily focused on financial returns, largely because they recognise that sustainable companies may be better positioned over the long term to meet future economic and regulatory challenges.

Green investing is therefore not just for do-gooders. It allows you to achieve financial profitability, diversify portfolios, reduce risk and align investments with personal values, while helping to promote sustainable and responsible corporate and social practices. It is an approach that can be adopted by investors concerned about the impact of their investment, and by those seeking to achieve consistent financial returns.

3. Green investing opportunities are limited

A common myth associated with green investing is the idea that opportunities are scarce and limited, which can deter investors from considering this approach. However, green investing is not limited to any one sector. Although it is often associated only with renewable energy, the truth is that there is a wide variety of sustainable sectors, such as sustainable transport, organic farming, recycling and waste management technologies, green construction and many more. 

According to Morningstar research, the number of sustainable funds is at an all-time high, with 505 new launches to date. And the range of choices continues to expand in terms of asset class, market exposure and investment themes.

[Source: Morningstar]

In addition, the most sustainable companies are looking to improve efficiency, reduce waste and adopt more sustainable practices as awareness of these issues continues to grow. These evolving market dynamics are creating a steady stream of opportunities for investors who wish to support green initiatives.

Finally, sectors less commonly associated with the green economy can also make an important contribution to reducing their consumption and environmental footprint, so investing in companies in these sectors that are improving their production processes should also attract capital from sustainability-minded investors.

4. Green investing is riskier

There is a common misconception that investing in sustainable companies carries more risk than investing in companies that have no responsible approach. However, green investing can be just as safe, if not safer, than traditional investments for a number of reasons.

The first is business resilience. Companies that adopt sustainable practices tend to be more resilient to unforeseen events, such as tighter regulation, volatile commodity prices or reputational issues. This can reduce investment volatility. In addition, as the demand for sustainable products and services increases, companies that are prepared to meet to this demand may have a more stable market base and therefore be exposed to fewer risks. 

So, while there are risks associated with any investment, green investing is not necessarily riskier than investing in other options.  

5. Green investing is more complex

The perception that green investing is more complex and requires specialist knowledge can be a deterrent for some investors. However, as sustainability becomes more mainstream in financial markets, simple and accessible investment products are emerging. Sustainable ETFs and ESG funds are examples of vehicles designed to make green investing more accessible and to make the process as easy as choosing conventional products. Whether green or conventional, diversification remains one of the most important investment strategies. 

In addition, there is more information available than ever before available to investors who want to make informed decisions about investing in environmentally responsible companies. Companies are required to report on their sustainability practices in financial reports and specific ESG documents. This transparency provides the basis for a more thorough assessment of risks and opportunities. 

Banco Carregosa, specialist green investing advisory services

Green investing is a concern for some current investors, but it is an imperative and a critical selection factor for today’s new generations of investors. 

However, it is important for investors to be well informed and to critically assess the risks when considering green investments so that their financial decisions are informed and aligned with their personal goals and values.

Green investing can offer significant opportunities, but they also carry risks and challenges. Before deciding to allocate capital to sustainable companies, contact the team of experts at Banco Carregosa and benefit from our strategic insights to manage your wealth safely.