Sustainability Policies In Investment
December 21st, 2009
The last few years have seen much introspection by players in the financial sector – namely the banking sector and Investors. The effects of global warming and steady deterioration of the environment as a result of human activity is no longer hidden from anyone – the effects can be felt daily. Climate change and the fear of exhaustion of non-renewable resources have led to great changes in public opinion on various issues affecting the environment. As a result, the financial sector has been forced to sit up and take notice of the kind of projects and industries they fund. It is now common for financial analysts and decision makers to factor in the risks related to environmental impact while making decisions related to investing in projects.
In addition to environmental impact, it is increasingly common to take social impact of projects into account while investing. Institutions have been moving away from funding industries that have significant environmental impact. The thrust now is on investing in companies that are innovating in production of clean energy and in sustainable production of goods. Consumer awareness and resulting legislation has caused many banks and venture capitalists to take a second look at the avenues of investment available. In fact, while investment in traditional areas has stagnated and even reduced due to the economic recession, companies involved in clean technology have seen an increase in funding available.
This is a direct result of the frameworks that the financial sector is basing its investment decisions on – the Equator Principles and the Principles of Responsible Investment, both of which provide some guidelines on assessing the sustainability of the projects to be funded.
It is not large institutions alone who can make a difference – the small investor too can do his bit for protecting the environment by investing in green bonds being floated – green bonds invest exclusively in companies that produce environmentally friendly products manufactured using sustainable practices and fair labor policies. There has been much investor interest lately in Renewable Energy Exchange Traded Funds (ETF). There has been a total paradigm shift in investment, both by institutional investors and individuals.
