The Problem With Green Investing

Saragossa

In early February, Verizon issued a so-called green bond – a security aimed at raising funds for sustainable businesses. It raised over $1 billion in its first 25 minutes, and was 8 times oversubscribed, making it Verizon’s most competitive security offering to date.

Meat substitute manufacturer Beyond Meat reported a 163% stock rise on Thursday the 2nd of May, representing the 16th highest IPO in US history. In early June, the company reported 600% total gains since the IPO opened – all despite the company having yet to turn a profit.

Estimates put the value of the so-called ‘responsible investment’ market at over $30 trillion and growing. Fund managers and venture capitalists are, it seems, seeing the potential for sustainable, environmentally motivated investments.

But environmental investing still has some way to go, and there are more than a few reasons why fund managers will be reluctant to place too many eggs (or plant-based egg substitutes) into such an uncertain basket.

For one, there is still some work that needs to be done on defining the standards and terminology of what exactly constitutes a green investment. Not all choices will be obvious, and an investment that appears green by one metric may not in fact be as environmentally sound as once thought.

And this is where we run into the problem of ‘greenwashing’. It’s easy for companies to – even innocently – misrepresent themselves as being more environmentally friendly than they actually are. Many feel that environmental investing will be unable to develop and realise its full potential until standards are clearly defined and greenwashing is a thing of the past.

The good news is that this is a problem that is already being in part addressed – as standards continue to grow more and more clearly defined (and as the capital invested in green endeavours continues to increase), we can only expect more companies not only to follow greener processes, but also to be more transparent about their true effect on the environment. However, fully prioritising the environment or putting people above profits is – understandably – always going to be a tricky concept for larger institutions.

It’s a difficult line to tread, encouraging companies to work in more environmentally friendly ways and at the same time not allowing companies with long histories of environmental and socio-economic abuse to become complacent.

However, the data does show that investment firms are catching on, with 2019 predicted by many to be the tipping point for environmental as well as social and governance-focused investing – the question simply remains as to whether it will be a substantial move in the right direction or merely a gesture.

Finance – and financial technology in particular – is one of the world’s most rapidly changing and developing industries. If you’d like to discuss opportunities within this industry, please do send me a message on LinkedIn, or drop me an email atruby@saragossa.co.uk. I look forward to hearing from you.