Evaluating financial returns of green financing

By: Contributor(s): Material type: Computer fileComputer filePublication details: Ahmedabad Indian Institute of Management 2024Description: 30 p. : ill. ; includes referenceDDC classification:
  • SP2024/3899 SP003899
Summary: The growth of sustainable investing has been a leading trend in the investment industry over the past decade. Sustainable investing applies environmental, social, and governance (ESG) criteria, with environmental concerns playing the leading role. For example, 88% of the clients of BlackRock, the world’s largest asset manager, rank environment as “the priority most in focus” among ESG criteria (BlackRock, 2020). Investments considered environmentally friendly are often referred to as “green,” with “brown” denoting the opposite. Investors often cite improved returns as a top motivation for applying ESG criteria. Moreover, asset managers often market sustainable investment products as offering superior risk-adjusted returns. Past performance is a popular marketing tool, and indeed several studies report superior historical returns to sustainable strategies (e.g., Edmans, 2011; Nagy et al., 2016; In et al., 2019). Of course, as the SEC generally requires all marketed funds, managers must warn that past performance does not necessarily predict future performance. Thus, with increasing expectations and incentives for businesses to be more responsible, accountable, ethical, and moral, from consumers and investors alike, it is probably the right time for organizations to carefully understand the soft power of ethical business practices that go beyond the concept of delivering only high profits as their primary goal. To enforce such expectations, some investors engage in selective disinvestment or selective investment on ethical lines. A prominent and most renowned example for this was the disinvestment from South African companies to enforce the abolition of apartheid (Beloff and Chevallier, 2012). In modern times, along with social responsibility, ethical practices now extend to concepts like environmental sustainability, gender and racial diversity, and social upliftment and responsibility. It expects them to not only achieve continuous economic progress but also protect communities, nature and the environment in the short term and long term.
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Student Project Vikram Sarabhai Library Reference Students Project SP2024/3899 (Browse shelf(Opens below)) e-Book - Digital Access SP003899

Submitted by Manov Das
Siddhant Hedaoo

The growth of sustainable investing has been a leading trend in the investment industry over the past decade. Sustainable investing applies environmental, social, and governance (ESG) criteria, with environmental concerns playing the leading role. For example, 88% of the clients of BlackRock, the world’s largest asset manager, rank environment as “the priority most in focus” among ESG criteria (BlackRock, 2020). Investments considered environmentally friendly are often referred to as “green,” with “brown” denoting the opposite. Investors often cite improved returns as a top motivation for applying ESG criteria. Moreover, asset managers often market sustainable investment products as offering superior risk-adjusted returns. Past performance is a popular marketing tool, and indeed several studies report superior historical returns to sustainable strategies (e.g., Edmans, 2011; Nagy et al., 2016; In et al., 2019). Of course, as the SEC generally requires all marketed funds, managers must warn that past performance does not necessarily predict future performance.

Thus, with increasing expectations and incentives for businesses to be more responsible, accountable, ethical, and moral, from consumers and investors alike, it is probably the right time for organizations to carefully understand the soft power of ethical business practices that go beyond the concept of delivering only high profits as their primary goal. To enforce such expectations, some investors engage in selective disinvestment or selective investment on ethical lines. A prominent and most renowned example for this was the disinvestment from South African companies to enforce the abolition of apartheid (Beloff and Chevallier, 2012). In modern times, along with social responsibility, ethical practices now extend to concepts like environmental sustainability, gender and racial diversity, and social upliftment and responsibility. It expects them to not only achieve continuous economic progress but also protect communities, nature and the environment in the short term and long term.

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