The Power of Socially Responsible Investing

30 December 2023 12:10 am Views - 182

 

In the world of investing, there's a growing conversation about balancing financial gains with ethical considerations. Resham Singh Keer, a digital entrepreneur, stands at this crossroad, and though he considers himself environmentally conscious, Keer prefers traditional investments like fixed deposits over newer concepts like green bonds and impact investing. “Opting for a fixed deposit offers a stable 7% to 8% return with minimal risk. I prefer this straightforward investment approach that assures solid returns within a three-year span, compared to the longer maturity period of five to 10 years typically associated with green bonds,” says Keer. Keer believes that concepts like 'green bonds' and 'impact investing' may be unfamiliar and less appealing to average investors due to potentially longer ROI periods. However, the performance of such socially responsible investments varies, with many outperforming traditional options as sustainable investing grows in popularity, driven by increased focus on ESG factors.

What is SRI?

Socially Responsible Investing (SRI) is an investment strategy that combines financial growth with positive societal and environmental impact. It focuses on ethical and conscious investing, where choices are made not solely on financial returns but also on the potential impact on the environment and society. In an episode of my podcast, Seynabou Ba, founder of ESG Africa and ESG Director of Azura Power Holdings, explained that green investing involves supporting companies committed to environmental and social causes. “These are companies that are conscious of their business activity, so they are investing in technologies that use less fossil fuels, safeguard water, and have a lesser impact on climate change, or use the least natural resources. An example could be companies generating electricity using solar, wind power, and hydropower,” she said.

Financing a sustainable future

Green bonds are financial instruments issued by governments, municipalities, or corporations to fund eco-friendly projects. They allow investors to support initiatives like renewable energy and clean water. When investors buy these bonds, they provide the necessary capital for these projects and receive regular interest payments in return. Upon maturity, they get back their initial investment. The global green bond market has been thriving, with a reported $2.5 trillion mobilised for sustainable projects as of January 2023 according to the World Bank.

A notable instance of the impact of these bonds was in 2021, with the issuance of a sustainability bond by PT Indonesia Infrastructure Finance. This bond was crucial in supporting the Sidrap Wind Farm in South Sulawesi, Indonesia. The project involved installing 30 wind turbines, contributing significantly to renewable energy generation and powering over 70,000 households. This project was made possible through a collaborative effort involving the Government of Indonesia, the World Bank Group, the Asian Development Bank, and other key international organisations, and it showcases how green bonds can successfully fund substantial environmental projects.

Balancing financial returns with social and environmental good

Impact investors actively seek investments that generate a positive societal or environmental impact alongside financial returns. Whether it's funding affordable housing, supporting small businesses in underserved communities, or backing sustainable agriculture, impact investing aims to make the world a better place.

Ratna Sharma is Executive Director at global investment firm Lighthouse Canton, which has a presence in Singapore, India and Dubai. She says, “I would recommend one to invest in an impact fund which invests in microfinance companies, which directly provide a source of livelihood to the weaker section of the population.

One can also look at  investing directly in NCDs issued by the microfinance companies or in an NBFC which provides funding for affordable housing.” International impact funds, which invest into India do not provide opportunities for external investors. An alternative she suggests are funds like Blacksoil that raise money via traditional fund instruments and then do impact investing.

Greenway Grameen is a clean cooking solutions provider working at the intersection of climate action markets, rural development and tech-enabled manufacturing. Says Ankit Mathur, CEO, Greenway Grameen Infra Pvt. Ltd., “In sectors that have a high impact on society, companies like ours need patient investors with alignment to the core mission values of the organisation. Allocation of procurement opportunities for products like Greenway stoves while working on sustainability budgets would be of a great help. Supporting allied initiatives like climate finance and offsetting involving such products is also a step in the same direction.” He does, however, caution that it's important that investors learn about the sector before investing, as it can take time for these companies to generate profits for investors.

The good news is, the investment world is slowly but steadily shifting towards sustainable and ethical choices. As investors like Resham Singh Keer balance traditional and sustainable options, this trend underscores a broader transformation in investment philosophy, one that I’m glad to note, integrates ethical considerations with financial returns.