Green and socially responsible investing are more popular than ever. On the other hand, emerging markets seem to give better investment results. Would it be possible for a green investor to invest in emerging markets?
Socially responsible and green investing funds tend to have strict criteria for screening companies that they can invest in. Very often, it is questionable if the legislation in emerging markets provides incentives for responsible business.
In China, for example, environmental and labor regulations are much looser than in most of the established markets. Furthermore, it can be difficult to find out whether a company meets even the local criteria. Typically, the companies are not very transparent regarding the social and environmental responsibility.
Because of this, many mutual funds and institutional investors are very cautious in emerging markets.
On the other hand, emerging markets like China seem provide the best bets for a green investor interested in solar technology. At the moment, the US solar technology sector does not seem to be worth investing — it is difficult to be bullish on US solar tech when the Chinese companies can produce technology at much lower prices.
In addition, the Chinese government is very much aware of today’s environmental challenges and it is gearing up to become the world’s most thriving low-carbon economy.
For me, there are two main reasons for investing in emerging markets.
First, I see the high GDP growth as a chance to get much better investment results than by investing in the developed markets. This is, of course, combined with the higher risk of the investment but since there are no free lunches I’m willing to take it.
Second, for me investing in emerging market is simply fair as the foreign investments are much needed in developing economies in order to help the people get out of poverty. I see fairness as an important part of a green investment strategy.