We have a climate crisis due to rapid industrial development. While development is a good thing, it might destroy our planet if it goes unchecked. Greenhouse gas emissions were depleting the ozone layer at a fast rate. With the depletion of the ozone, the earth might become a sterile desert, but with technology, we might have a solution to the problem.
Environmental investment is a way of socially responsible investing (SRI), and investors choose to make investments in companies that provide or support environmentally friendly services or products. An environmental investor evaluates an investment opportunity based on its effect on global environmental issues.
An environmental investor stays interested in a business, which promises good returns financially in addition to conserving the environment. ESG (Environmental, Social, and governance) investing is growing, and investing in climate change is one way of positive screening, or choosing to invest in a company making a difference to the environment. Some pitfalls of ESG include:
1. It’s not a one-size-fits-all
Before investing in an ESG fund, ensure that the fund’s core values match yours. Not all ESG funds will be in line with your beliefs. You may want to get into an ESG fund that supports lab-grown meat, but you are a vegetarian, which is not in line with your core values.
2. Higher fees
The fees for socially conscious strategies have gone up in comparison to passively managed funds. Portfolio managers charge high fees to compensate for monitoring the company activities constantly to uphold the fund standards. These high fees drag down company performance.
It is a challenge to build a well-diversified portfolio if you want to invest in a company that is known for following strict guidelines. This does not mean excellent and sustainable companies are non-existent, but because the data needed for screening companies on a global scale is not available, affecting the ability to reduce portfolio risk and diversify.
Examples of ESG Funds
Internet of Things (IoT)
Sensors placed on trees monitor any sounds related to logging, such as large vehicles driving into unauthorized areas, or the whirring of chainsaws. As powerful as IoT technology is, it is highly susceptible to hacking. Using a VPN and Wi-Fi Data encryption is the best way to protect the Internet of Things from vulnerability from hackers who may try to intercept data for illegal purposes.
Blockchain and Illegal fishing
Blockchain systems can prevent illegal fishing in several ways:
- By the registration of net types and quantities on a blockchain system, authorities can keep track of whether the boats dock with the same number of nets they set sail with.
- When fish arrive in a port, fishers mislabel and misrepresent them as more costly fish to bypass quotas or increase profits. By using smart contracts, it is possible to set sustainable fishing quotas and enforce the quotas when ships dock.
- The blockchain system makes it easier for different countries to share data on product labeling, fishing quotas, and repeat over fishers. Blockchain is decentralized and immutable and can prevent illegal, unreported and unregulated fishing
The growth of lab-grown meat occurs via the in-vitro cultivation of animal cells. Stem cells are taken from the fat or muscle of an animal and placed into a culture medium that lets the cells grow by feeding them. This medium is then put into a bioreactor, which supports cell growth. This method protects the environment by:
- Fewer greenhouse emissions: cultured meat needs between 7 to 45% less energy to produce in comparison to pork or beef production
- Better quality control of the meat: There is no risk of diseases like mad cow disease, which kills both the animal and humans who eat contaminated meat. Lab-grown meat grows in ultra-high hygienic conditions.
- Sustainability: As global warming renders fertile ground into the arid ground, more sustainable farming techniques have to be found. Lab meat will be a viable way of food production by reducing famine and hunger in third world countries.
Environmental conservation is done in many different ways. To invest in an ESG fund, companies need to do their due diligence. Investing in an ESG fund has to be compatible with the company values and beliefs, and turn out good returns.