Green funds are commonly understood as investment schemes that champion environmentally friendly policies and socially responsible business approaches. So, besides moral satisfaction, what can they offer to investors?
Siobhán McBean, a partner in the asset management and investment funds group at law firm Arthur Cox, emphasises that not all green funds are on equal footing. The vital aspect is for investors to comprehend the investment strategy and risk associated with a particular fund, she indicates. The same principle applies to green funds. The necessities for assessing whether the fund aligns with their investment targets and sustainability aspirations include a thorough understanding of a fund’s green credentials aside from its broad investment approach.
Several incidences reveal green funds outperforming their conventional counterparts, loosely termed “brown” funds. Nevertheless, McBean cautions that performance is determined by the fund manager and investment strategy. “There isn’t a universal benchmark for returns or performance across ‘green’ or ‘brown’ funds.”
Philip Murphy, who offers financial services tax partnership at KPMG, sheds light on the evident inclination over recent years for investors to diversify their portfolio to include more unconventional assets like renewable energy. He says these assets can offer increased equilibrium, especially in fluctuating bond and equity markets. Murphy indicates that diversifying into green assets will become more attractive due to factors like inter-generational wealth transition, the advance to worldwide carbon neutrality and an increased comprehension of ESG dimensions.
After a recent decline in green investment across the globe, McBean expects this downturn to be temporary. “Investors’ understanding and expectations concerning ESG have certainly become more advanced, giving rise to a continued demand for ESG funds.”
Murphy highlights that the recently enhanced regulatory structure for European long-term investment funds (ELTIFs) in Ireland has eased the private investors’ path to green fund investment.
The ELTIF framework is centred around shared investment funds which possess tangible investments; these typically offer returns over an extended time. Such assets may include wind energy sources and various other renewable resources. This framework does not require a minimum investment, thus making it available to all types of investors, instead of being exclusive to institutional investors or those of substantial wealth.