Soon President elect Biden will be in office and one of his policies will be the Green New Deal, it is a plan to reduce the carbon used in everyone’s daily life. Some will be solar and wind methods to generate electricity. Some of the plan will include retro fitting buildings such as your home and office building to use less oil. Save money by investing in methods to reduce your energy costs, likely with some sort of government rebate on your expenses.
Those are the general ideas of the green new deal, but how do you as an investor know which companies to invest in and which ones are really green? This has been an ever growing issue since BlackRock, the world’s largest asset manager of $7.3 trillion said it planned to make environmental sustainability a key plank of its investment strategy.
Last January, Chairman Larry Fink used his annual letter to CEOs to predict a fundamental reshaping of finance because of the growing awareness that climate change poses a risk to investments. BlackRock said it was going to reduce the shares of polluting companies and also to launch new, eco-friendly investment products.
In an article by RitaTrichur, outlined some of the difficulties that occur when trying to do the correct thing with ESG or Environmental, Social and Governance. If you go to the grocery store and see the organics label guarantee on the package, then you have a better idea the product is 100% organic. If you do not see the label, then are the manufacturers using the word loosely? You may not be positive.
It is the same way in investing, what is a green company and what is a company doing some good green things and some not? Is it green or as long as it is making an effort is that good enough? If you invest in insurance companies because of the risk for example flooding has, you want to know how much of the portfolio is risk to flooding? what are the extra costs over the past few years? (the writer owns a policy by a farm mutual and one year they wrote, we had a rash of barn fires so we did not make as much money. The next year all barns must have extra preventive measures in the barns. The following year fewer barn fires, the insurance made money). Can governments and regulatory bodies make some standards to know what is green and what is not?
Linking to dividend paying stocks, when you buy a oil pipeline, your first priority is not if the company is green or not, but does it have contracts to ship oil and gas through the pipeline to the refineries. What percentage of the market do they have and can they raise prices every year? The economy is still based on carbon, but as we look to the future, there maybe companies that can deliver similar results in a more green economy. When you start to see them, then it makes sense to look at the alternatives. We all have different reasons to owning a stock, as you change including the environment is a good thing to add.
There are more questions than answers, till the next time – to raising questions.