Will Green Investing get easier?
On the TV, the radio and in social media “green investing” or “environmentally responsible” investing are phrases you hear more and more. Everyone wants to do their bit in terms of fighting climate change and the financial markets are no exception. This has certainly caught the attention of the powers that be.
In May of this year, the European Commission laid out plans to regulate investments claiming to be “green” and therefore socially responsible. Global investment in such assets is certainly growing with the Global market deemed to be US$23 trillion in 2016.
Unsurprisingly, there have been issues. Many asset managers have used very superficial criteria to classify investments as green ones. Whilst others may have adopted accounting standards allowing them to choose their own definition of green investments, thereby making it difficult to compare and contrast funds and players in the market.
For example, the Climate Bonds Initiative, a non-profit making organization, excludes fossil fuels in its definition and is undecided about nuclear power or carbon capture. Whilst the International Development Finance Club, a network of development banks does include carbon capture but excludes nuclear power. Definitely confusing.
In addition, companies also measure their environmental and pollution impacts differently and currently in the EU, these are all voluntary accounting disclosures.
The aims of the European Commission initiative are to bring clarity for investors by highlighting weak performers. The difficulty for them is constructing a standard to cover all the various sectors and industries that widely come under the “green” umbrella and bring to the table a consistent approach so it is easier for the investor to compare operators in different sectors, energy versus chemicals for example.
If nothing else, the debate has started in an area previously bereft of any actual environmental accountability…sustainable investing will get easier with clearer regulation.
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