How green is my fund?

Brian Haugh, Head of BDO Valuation & Financial Modelling Centre featured in The Irish Times Special Report on Green Finance.

Green investing has been increasing in popularity in line with the growth in awareness of the impact of climate change and other sustainability issues. The investment of choice for many people tends to be a green labelled fund, but doubts are still raised in relation to just how sustainable some such funds really are, as well as the returns on offer. And the term green can often be open to interpretation.

“Although the term green fund might sound like it refers only to environmental issues, it is often used interchangeably to refer to any fund with a focus on sustainability, whether that be in relation to environmental or social issues,” says Brian.

“The term is also often used interchangeably with environmental, social and governance (ESG) investing. In addition to the warm fuzzy feeling of investing in products that align with their ethics, there is also evidence that sustainable investments are less volatile and provide better risk-adjusted returns for investors compared to conventional funds.”



Investors will still need to be careful, however. “While improved regulation and definitions are welcome, it is still not easy for many investors to ensure that their green investments are having the positive impact that they are hoping for,” says Brian.

“They say the devil is in the detail, well in this case it’s specifically in the disclosures. An investor that is looking for a fund that aligns with their ethics and ambition for impact they will need to carefully identify whether the fund falls under Article 6, 8, or 9 of the taxonomy and then the extent to which its activities align with the ESG taxonomy.”

The good news is that he believes that the number of funds specifically targeting truly green activities is likely to grow significantly in the coming decade. “At Cop26, the Glasgow Finance Alliance for Net Zero pledged $100 trillion to finance climate action projects,” he notes. “This will no doubt fuel significant growth in climate action-focused funds over the coming decade.”

Content adapted from The Irish Times.

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