Low Risk Green Balanced Investment is Not Easy

Published / Last Updated on 24/03/2021

Many countries have committed to the Paris Agreement on Climate Control including the UK, Europe and now the USA is also 'back on board'.

Countries have committed to reducing emissions and many, such as the UK have committed to becoming carbon neutral by 2050.

This has filtered down into investment funds now with investment companies required to have an ESG Policy (Environmentally Friendly, Socially Responsible and corporate Governance policy).  Not just in how investment firms operate themselves but also in the companies that they invest in on behalf of investors.  Likewise, financial advisers must cover this area and garner the views of their clients when it comes to 'green' investment and pension funds.

That said, the question of risk is very difficult.  Many clients may be low risk or medium risk with a tolerance to losses of no more than +/- 5%, 10% or 20% pa.

It is currently very difficult to build a lower risk 'green' investment portfolio.

Most ESG funds are available in the US, the UK or Japan.  There are not many European, South American or emerging markets 'green' ESG funds.  In addition, most ESG funds are equity funds rather than green bonds/gilts or green deposit funds.

This makes it extremely difficult at present to build a balanced, cautious ESG 'green' investment portfolio.

As with all equity funds, green funds also fell during the Covid-19 stock market crash in March/April 2020.  This means that many funds fell by 20-35%, as did the rest of markets.

Equally, demand is high for ESG investing, so are prices being pushed artificially higher due to a lack of supply?  Are some green fund managers being forced into more speculative green tech and investment companies?

We genuinely believe that ESG investing is the growth area over the coming decades but at present due to the lack of availability in mainstream markets and focused on just 3 regions with mainly equity and only some 'green' government bonds, we suggest you have to approach this as a medium to high and higher risk investor.

It may be a year or two before we are able to offer proven, balanced ESG green balanced investment portfolios.

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