Navigating the Green Transition

Green investing (also variously referred to as “clean, sustainable, and climate change” investments) is an investment approach that has gained considerable momentum. By 2018, at least $30.7 trillion of funds is held in sustainable or green investments, up 34% from 2016, according to a report by the Global Sustainable Investment Alliance. During the first quarter of 2020, global sustainable funds further saw inflows of $45.7 billion, according to Morningstar, while the broader fund universe had an outflow of $384.7 billion.

In fact, this investing approach was already coming off a banner year through the well-known ESG approach. However, green investment is more than ESG. For example, Tesla’s ESG rating is controversial, but its products are undoubtedly green. In this report, attention will be given to “green investment”, which its evaluation is mainly based on environmental performance. We also see an acceleration in green investment in the aftermath of Covid-19. In the equity market, iShares Global Clean Energy ETF - the world’s largest clean energy ETF - has gained 101% year-to-date (09/12/2020), as compared to 14.38% in the S&P 500.

As green investment continues to gain audiences among institutions, policymakers and citizens, we expect the green wave to be one of the most important secular trends through the years. And we invite investors to include sustainability in portfolios to take the advantages in the increasing demand and the benefits of risk diversification and deliverable returns.

In the following parts of the report, we first discussed why sustainability became the most wanted investment since Covid-19. We also presented how green investing delivers better performance through empirical risk-return analysis. Further, we consulted a clean-energy engineer, who works for the Nasdaq-listed company Canadian Solar, to guide investors through the renewable industry. And based on the industry insight we proposed investment recommendations. Finally, we informed investors of potential limitations that may appear during the investment period.