Fighting climate crisis with your wallet – Where should you invest your money for quick returns?

Is it worth investing in green?

Many of us wonder whether the "green" industry actually brings profit. Over the course of the 20th century, a so-called green revolution began, which by now, according to the latest data, has matured.

Up to this point, green businesses required much larger startup capital and technological development than traditional competitors, but the approach to climate change has fundamentally changed this. Governments and banks are increasingly providing support to sustainable companies, which eases initial difficulties. Later, these companies will become the world's most valuable enterprises.

This is well demonstrated by the fact that ESG funds—funds that consider environmental, social, and governance factors—performed better during the crisis than their "traditional" counterparts. A record amount of capital flowed into ESG funds in July this year, totaling 128 billion forints.

What should I invest in? Where can I find them?

Green investment funds are a good starting point for finding most green investment opportunities. Only companies that operate with social responsibility and prioritize environmental protection in their management and operations can enter this category.

Another possible step is to look around the stock market, or the exchange. Here you can find smaller startup companies that are developing new environmentally friendly technologies and are issuing shares due to startup capital or capital needed for development.

By increasing investments targeting green industries, governments are also trying to create a trend in this direction. Hungary issued its first green bonds in the summer of 2020, which, despite being brought to market during a critical economic situation, were in high demand. These investments typically require larger volumes of capital, but can have an impact on the entire market and investor behavior. Moreover, not only governments but also banks are increasingly offering more green savings products, with much lower entry amounts.

Examples include the OTP Bank Climate Change Fund and the K&H Eco Fund.

When will it pay back?

The payback period for green investments is generally long-term. In our country, an energy-focused green fund typically has a payback period of approximately 10-20 years, but for example, the aforementioned Climate Change Fund can have a payback period of as little as 5 years. The longest-maturity green bond in Hungary is 31 years, while the average maturity is 13 years. Since we typically want shorter payback periods with retail investments, it's worth considering other investment forms.

However, there are also investments focused on conscious future planning, such as pension funds. Unfortunately, in our country today, only a few green-themed pension fund portfolios are available, in contrast to Western markets.