All the focus on these important issues is helping to bring about change at a business and government level.
Investing is changing too - the global market for investments that consider environment, social and governance (known as ESG) factors is forecasted to increase from $64.71 billion NZD in 2023 to $119.2 billion in 2033.
But what is green or sustainable investing all about? And is it something you should consider?
What is green investing?
Investments that consider environmental factors and aim to be better for the environment are called sustainable, green or ESG investments. ESG is used to encompass not just physical environment, but also social good.
These types of investments can include KiwiSaver funds, managed funds, exchange traded funds (ETFs), direct investment in environmentally conscious companies, and index funds.
There’s a bit of confusion over what it takes to call an investment ‘green’, ‘sustainable’ or ‘ESG’, which means that these terms are often used interchangeably. Our Money and You episode on 'How to use your money for good' helps break down some of these terms in an easy-to-understand way.
Some investments simply say they consider ESG factors when managing their fund. It’s not always clear what their criteria is.
Others proactively invest in companies that are having a positive environmental impact, such as businesses developing green energy solutions.
Some funds will not invest in companies based on their negative environmental impact. This might include production or use of fossil fuels and other negative environmental impacts.
ESG investments also consider governance and social issues, meaning they take into account the way that companies are run and their impact on the community. These funds can give you peace of mind, knowing that they’re not profiting off the success of businesses that are negatively impacting the environment.
Are green investments worth considering?
If environmental issues are important to you it could be worth considering green or ESG investments.
In fact, even if you’re not concerned about the environment, ESG may be worth a look - and some think that companies that live ESG values could have a more long-term growth focus. Like all funds, their aim is to achieve strong, long-term returns (though this is not guaranteed, so always make sure you're aware of the risks involved with any kind of investment!)
How can you be sure the fund you’re investing in is truly green or ESG? Checking out Mindful Money is a good place to start. This charity is dedicated to empowering all New Zealanders to understand what their investment funds include, and helping them make informed decisions around ethical investing.
Their website includes a list of funds that meet their high ethical standards. If a fund isn’t on the list, you can find out more about your fund by looking at its product disclosure statement (PDS), which provides you with important information to help you figure out how exactly the fund considers green or ESG factors and what investments it holds.
If you need help, consider asking a financial adviser and making it clear that ESG and green investing factors are important to you.
Disclaimer:
This What's the story with green investing? is general information only. The views and opinions expressed do not necessarily reflect those of the FSC. It is not intended to constitute legal or financial advice and does not take your individual circumstances and financial situation into account. We encourage you to seek assistance from a trusted financial adviser, legal or other professional advice.
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August 2023
