Green investment in post-crisis era

Source: Ivetta Gerasimchuk, Vedomosty, RICS Valuation Information Paper N13

In the post-crisis era western investors appear as keen as ever on investing in environmental and sustainability projects, especially those connected with energy efficiency, renewable energy and cutting greenhouse gas emissions. In some G-20 countries these undertakings receive substantial governmental financial support in billions of dollars (with the exception of BRIC+ countries – Argentina, Brazil, India, Indonesia, Russia and Turkey). The key factor for sustainable investment is risk diversification – the sustainable market dynamics is not as vulnerable as other assets popular with investors, especially precious metals and raw materials.

According to Vigeo, a specialized rating agency, in Europe only the number of green, social and ethical funds increased from 537 in July 2008 to 683 in June 2009, and the value of sustainable assets managed by these funds rose from 48.5 billion to 53 billion euro.

However, some experts see certain parallels with the dotcom boom and are quite apprehensive of the possible green “bubble”, which will burst and social and environmental projects will go on working without ‘overheating’. It should be mentioned, though, that social and environmental projects are much more versatile in nature and are more widely spread. They exist in almost all the sectors of economy and all the countries: from creating green jobs in China to recycling toxic waste of electronic industry by English prisoners.

Besides, after the dotcom experience investors are much more cautious.

First, several large professional associations appeared to aid exchange of experience, such as Equator Principles, with over 70 of the world’s largest banks), UNEP Financial Initiative with 200 participants, Carbon Disclosure Project with over 530 largest European and other investors.

Second, over the recent years there was more research into econometric correlations between companies’ social and environmental indicators and their profits. It might be too early to jump to conclusions, but there is more and more evidence of correlation between social and environmental and financial stability of the company. But it is not that the latter depends on the former, it is that they both have common reasons, such as the quality of management.

Thirdly, investors might find it difficult to track the most well-performing green companies, that’s why they’re making sure they don’t invest in the those with the worst social and environmental indicators. This is why the process of investors’ ‘greening’ is crucial to Russia. It is an open secret that especially in terms of energy efficiency per end product Russian companies have very little to boast about.

Unfortunately, there aren’t many financial organizations in Russia ready to credit and invest in social and environmental projects; these are mostly EBRD and IFC’s intermediaries.

However strange this may seem, there is a bright side in this situation too. In the current situation the potential of the Russian market for improvement is much higher.

Greening tendencies are also quite clear-cut in the world construction market. With sustainability standards gaining the upper hand, sustainability is bound to affect property and potentially its value. It is not difficult to see why it is the case. Not only does property itself have an impact on the environment though its whole life cycle, but environmental and social aspects of sustainability impact on property performance. Although climate change is still a highly contentious issue, property developers are already taking into consideration its effect on the properties, as well as the impact of energy demand and reducing supplies of fossil fuel on materials and energy consumed by buildings.

There is a general expectation that buildings that minimise environmental impact through all parts of the building life cycle and focus on improved health for their occupiers may retain value over a longer term than those that do not.