Growing Green: Grow your Values with your Wallet

7/26/2024

Judah Solomon (Hebron High School)

Green funds, also known as sustainable or environmental, social, and governance (ESG) funds, are investment vehicles that focus on companies with strong environmental practices.  These funds stretch further than just financial performance. They also prioritize companies that utilize renewable energy sources, which reduces their carbon footprint, therefore promoting resource conservation. ESGs also uphold strong social responsibility standards. 

Some of the larger companies that are shedding their skepticism and starting to see the green light on green funds include Prologis and AppFolio which in 2023 was reported to be placed in the top 100 companies by Dow Jones' ESG score. These trends are also foreseen in another landscape with a 2023 Morgan Stanley report stating that sustainable funds outperformed their traditional peers across all major asset classes and regions in 2023. Furthermore, expanding the importance of investing in such companies, green funds aim to generate higher financial returns while also supporting a more sustainable future.

Green funds are suitable for investors who want their money to make a positive environmental impact while also achieving their financial plans. Public awareness of environmental concerns is at an all-time high, leading many investors to seek ways to align their investments with their environmental views. These benefits/causes are what makes these funds such a popular choice, often because of its wide variety of options. A few common types include renewable energy funds, clean technology funds, and sustainable infrastructure funds, which is further supported through a 2022 US SIF Foundation Report that found that 85% of global sustainable, responsible, and impact investment assets are professionally managed.

While green funds offer a compelling way to invest for a sustainable future, there are some unfortunate downsides such as uncertainty on the long-term performance of green funds compared to traditional funds due to its limited track record.Furthermore, some green funds may have slightly higher fees due to the additional research and analysis involved in selecting sustainable companies. There is also a greenwashing risk, which Sustainalytics details as, “missing reporting deadlines, providing incomplete or inaccurate information to regulators or investors, or failing to define and follow internal policies and practices”. 

On the contrary, green funds offer a brighter side with a unique opportunity to align your financial goals with a more sustainable future. Morningstar, a financial services firm, found that sustainably focused funds have outperformed traditional funds in recent years. In simpler terms, it explicitly means that your investment might be growing at a constant pace alongside a growing greener future. The company filed a report in 2023, finding nearly 50% difference in median returns, with sustainable funds reaching 12.6% compared to traditional funds at 8.6%. This data further proves that green funds may offer competitive returns alongside environmental benefits.

To conclude, green funds offer an opportunity to align your investments with your environmental values. While there are downsides,such as limited track record and potentially higher fees, some studies suggest they may deliver competitive returns alongside environmental benefits. This makes them a compelling option for investors seeking a balance between financial goals and a more sustainable future. If you are interested in making a growing, green investment the steps are as simple as…

1. Open an investment or retirement account

2. Research green investment options

3. Purchase eco-friendly stocks, ETFs, and mutual funds

4. Monitor your investments on a regular basis

5. Make frequent investments to help grow your portfolio

So today, be the one to make a difference by joining the many investors in DFW that have already begun investing into greener energy for a greener environment!