Investing for environmental or social issues, not just financial returns, has become increasingly mainstream
The Irish Government previously announced their ambitious Climate Change Action Plan with the Climate Action Bill published in October 2020.
They outlined some 200 actions that they will take over the next 30 years to become a carbon neutral country starting in 2021. This is in common with most developed and developing countries. The current Irish target is an 80% reduction by mid-century, though climate scientists say this is insufficient to keep global temperature rises to within 2 degrees as envisaged under the Paris Agreement.
The Bill establishes a system of five year carbon budgets and sector targets. The relevant Minister is responsible for delivering on the target and there are penalties if they are not met. These targets will be underpinned by a new Climate Action Act. Some of the main headings are as follows;
Energy target: A new commitment that 70 per cent of Irish electricity needs will come from renewable sources by 2030 with plans to add 5GW of offshore wind capacity in the next 10 years.
Scaled-up commitments: Across all sectors there are revised targets such as: 700,000 electric passenger vehicles on Irish roads; 500,000 retrofits of domestic houses; installation of 625,000 heat pumps in buildings; 10 per cent of Ireland’s heat to be supplied via district heating in cities – by 2030.
Microgeneration: The plan recognises consumers using smart technology will soon become “prosumers”, contributing power to the grid and getting paid for it. This gives big opportunities to farmers, small businesses and communities to participate in an energy revolution driven by innovation. It places a huge additional onus on ESB Networks and Eirgrid amid rising demand.
Weather patterns: In energy, the plan strongly endorses deployment of offshore resources (wind, wave and tidal), more onshore wind, solar development and bioenergy including deployment of anaerobic digesters in the agri-food sector to generate biomethane of sufficient quality to inject into the gas grid.
Climate change and Green Investing go hand in hand and there are great opportunities to invest in businesses that generate income from reducing our carbon footprint. Interest in sustainable finance is not only growing, it’s sustaining. Sustainable finance refers to any form of financial service integrating environmental, social and governance (ESG) criteria into business or investment decisions.
In the past, investors evaluated their performance based on financial measures alone. However, investing for environmental or social issues, not just financial returns, has become increasingly mainstream. According to the Global Sustainable Investment Alliance (GSIA), $23 trillion – or 26 per cent of all assets under management in 2016 – were in investments that take account of ESG issues.
Interest is growing in Ireland too. In November 2018, Sustainable & Responsible Investment Forum (SIF) Ireland published Ireland’s first ESG State of Play report. Of the 16 Irish-located asset management firms which responded to the survey – representing €77 billion in assets under management – 80% had a formal ESG policy in place.
The main areas we would see investor interest is in renewables like Wind, Biomass and Biogas plants. The other main areas would be Energy from Waste and Social Housing. There is an appetite among investors to back these types of projects both for the return they generate but also their overall benefits.
At the moment there are investment opportunities in the following areas, Energy from Waste, Wind Energy and Social Housing. There are also investment opportunities periodically in Biomass and Biogas plants and Energy from Farm Waste. These businesses are usually asset backed and generate steady income over a period of time.
Across the world, the growing momentum towards sustainable finance is clear. The green bond market continues to expand. Sustainable finance is now identified as a key focus within the G20 and the G7, and financial regulators are incorporating environmental risks into market supervision. Indeed, sustainability factors are becoming material for the competitiveness of financial centres.”
While no strategy ever outperforms all others over the longer term, if you measure return for risk, as opposed to return on investment, sustainable investing does very well.
Everybody buys into the fact that if we don’t do something in the short term, we will see a significant negative impact on the planet’s ability to support its population in this century. There is wider consciousness too about the ability for investments to have a positive impact at societal or community level area.
Moreover, if businesses aren’t making themselves more sustainable, they are exposing themselves to material risks over the coming years. Increased regulation will make it more expensive to do business unsustainably, thanks to the imposition of penalties and, conversely, the encouragement of good behaviour makes it advantageous to think and act green.
Conor Harte is a Financial Planner with Wealthwise Financial Planning who are based in Block C, Hartley Business Park , Carrick on Shannon, www.wealthwise.ie All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland.#CI66141