What shade of green are your investments?

*This content is brought to you by Shyft, the global money app, powered by Standard Bank

This Earth Day, it’s worth thinking about the real environmental impact of your investments and how to truly go green with your money.

Though we pale in comparison to the worst offenders, South Africa is still one of the highest emitters of carbon dioxide in the world. We are responsible for roughly 1%, or 0.43 metric gigatons, of global emissions annually. And while you may think there’s not much that you as an individual can do about it, there is. Investors (both retail and institutional) should be thinking seriously about the environmental impact of their asset allocations – and many are.

2021 was hailed as a bumper year for responsible investing, seeing progressive record inflows into environmental, social and governance (ESG) funds. According to fund-performance researcher Refinitiv Lipper, between January and November 2021 $649 billion was invested into ESG-focused funds globally – up from $542 billion in 2020 and $285 billion in 2019. Of the $6.1 trillion that Refinitiv Lipper says is currently in ESG funds, 59% is held in Africa, Europe and the Middle East, marking us out as early adopters of this investment trend.

A case of greenwashing?

Unfortunately, regulators are still playing catch-up when it comes to the rules of what can and cannot be labelled a climate-first fund. In the meantime, a so-called green investment may be a rather different shade in practice.

In 2021, shortly before the UN’s landmark COP26 climate-change conference, Paris-based international business school EDHEC found significant gaps between the stated climate objectives of several global money managers and the reality of their investments.

“Across strategies focusing on climate, the climate scores account for only 12% of differences in weights across stocks,” said their report, entitled “Doing Good or Feeling Good? Detecting Greenwashing in Climate Investing”. It added that, “Mixing in ESG scores makes climate scores even less impactful.” Translation: at least 88% of what guides many so-called climate-first funds is the same as what you would find in any other investment.

“The climate score plays second fiddle at best,” EDHEC noted in their report, with barely concealed disappointment.

The new normal

Standard Bank Group CEO Sim Tshabalala believes the effects of the Covid-19 pandemic have only increased the global urgency around responsible living and sustainable finance. It has, he says, “forcefully reminded us of our dependence on each other and on the environment”. He predicts that we will see “an undoubted increase in the demand for financial products and services that support a just transition to a more inclusive and sustainable economy”, which was already on the international agenda thanks to the global focus on the UN’s 2030 Sustainable Development Goals.

Getting down to business

Whether you are looking for a standard ESG strategy (which involves pricing beyond traditional financial factors such as cash flow and return on equity), or you would like to focus more intently on impact investing (which focuses on investing only in companies that expressly seek to solve environmental and social challenges, particularly those aligned with the 2030 SDGs), it is possible to put your money where your mouth is – or where your values are, so to speak.

While ESG investing has reached the mainstream, a key differentiator for asset managers now and in the near future will be providing options for investors who want to invest for impact. You have three options to consider based on your appetite.

  • You could interrogate the make-up of your portfolio and hold your investment manager to account.
  • You could take your investments into your own hands, identifying and investing in companies that really do make the world a better place.
  • Or you could place your money (and your trust) in an investment provider with a proven ESG track record.

Whichever option you choose, you need to do some research to ensure your investments really are as green as they claim to be. Not only will this provide capital for activities with more sustainable and positive outcomes, but it could also provide attractive returns for shareholders, creating shared value for all.

Shyft users can start greening their portfolio right from their phone, with 300+ stock options and ETFs to choose from, including many in the renewable-energy sector. Visit getshyft.co.za to download the global money app today.

This post was sponsored by Shyft, the global money app, powered by Standard Bank. With Shyft you can buy forex instantly anytime, anywhere, and at the best rates, and invest in top US stocks and ETFs. Shyft was named Best Financial Solution at the 2021 MTN Business App of the Year Awards. Visit Shyft to download it now, no matter where you bank. Shyft operates under the license of The Standard Bank of South Africa Limited, an authorised Financial Services Provider (FSP number 11287).

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