July 16, 2008
The Very Rich Green Their Portfolios
With European and Middle Eastern investors leading the way, high-net-worth investors are putting
their money into green technologies and alternative energy sources.
Double-digit millionaires. Triple-digit millionaires. Billionaires. High-net-worth individuals or
HNWIs. The very rich. The ultra-rich. No matter what you call this group of people with at least
$1 million in financial assets, their numbers are growing. The 12th annual "World Wealth Report 2008" released by
Capgemini and Merrill Lynch states there are over 10 million people globally with
at least $1 million of financial assets in 2007, an increase of 6% over 2006.
emerging markets and IPOs saw strong growth from HNWIs in 2007, HNWIs invested in safety last year
with 44% of their financial assets in cash and fixed income securities. Uncertainty in 2007 lead
these investors away from alternative investments, such as hedge funds, although hedge funds still
make up 30% of alternative investments.
Yet even with 2007's market uncertainties, green
investing show marked growth in 2007 among the very rich. The "World Wealth Report 2008" postulates
the growing awareness of climate change and new investment opportunities in green investing has
lead to the growth in green sectors investments, with more growth to follow in coming years.
"Growth in green investment is expected on the basis of growth in the green sector," said
Ileana van der Linde, Principal, Wealth Management Practice at Capgemini Financial Services.
"Looking ahead, environmental concerns and means of sustainable development will increasingly weigh
on business and investor decisions. That coupled with the sheer size of the energy market and the
fundamental need for energy to drive economic growth underpins the long-term viability of green
Individual venture investors pumped $5.2 billion in 2007 into the green
sectors globally. In the US alone in 2007, $3.9 billion was invested in green technology.
Worldwide, 12% of HNWIs allocate part of their portfolios to green sectors including
alternative energy. Fourteen percent of ultra-HNWI investors-those with $30 million in financial
assets-have part of their portfolios invested with green companies. HNWI investors in Europe and
the Middle East lead the way in green investments. While only 5% of North American HNWIS show a
green portion of their portfolio, 17% of European HNWIS are invested in green and 20% of Middle
East HNWIS have some green investments.
"In line with the scope of analysis, this report
does not address the regional differences in HNWI preferences at a granular level, nor does it
attempt to explain variations in social or cultural motivations across regions," van der Linde told
SocialFunds.com. "That said, possible explanations may lie in European culture's longstanding
commitment to environmental preservation and the development of green initiatives, while Middle
Eastern economies may want to retain their historical positions of net providers of energy into the
future by pioneering green initiatives and/or implementing economically viable solutions on a mass
scale," continued van der Linde.
The wide range of definitions applied to green investing
makes sizing the green sector very difficult the report notes, with both "best in class" oil rigs
and new clean technologies called "green."
More telling perhaps as a measure of interest
in the environment is the increase of socially responsible investing (SRI) among the rich and very
rich suggests "World Wealth Report 2008." However, although the green and SRI markets can
overlap, they are distinct and conclusions drawn from SRI market research can't necessary be
applied to the green sectors.
HNWIs and institutional investors accounted for over 70% of
the $2.71 trillion SRI assets under management in 2007 Merrill Lynch and Capgemini's report offers.
The report states, "Given the high development risk associated with the sector, green investing
caters largely to institutions and HNWIs-more sophisticated investors willing to assume greater
financial risk in hopes of high returns."
Returns are the number one reason for HNWIs to
invest with green companies although SRI motivation changes from region to region. Explained van
der Linde, "slightly more than one-half of HNWIs globally allocate to green investing primarily on
the basis of investment return, whereas roughly one-third point to social responsibility as their
motivating factor. This trend holds true in all regions but North America, where a majority of
HNWIs claim social responsibility as their primary reason for participating in green investing."
The renewable energy sector had record IPOs in 2007, with overall investments in clean
technology increasing by 35% to $117 billion.
The changing energy market and concern for
the environment will continue shape and grow the green sector concludes the report.