Green investing is an increasingly popular approach where an investor puts his or her money to work in ways that support the investor's financial goals and personal beliefs. Making money while supporting causes that you believe in is certainly a good thing, especially when one of those causes is keeping our plant habitable for all things great and small, but the issue of "green" isn't as black and white as it may seem. (To learn more, read What are green investments?)
Green is Good
At face value, all things green would seem to be good. After all, who can argue with water conservation, sustainable agricultural practices, renewable energy and good land stewardship? These very issues tug at the heartstrings and social consciousness of most people, whether they are investors or not. (For more, see Go Green With Socially Responsible Investing.)
The Opposite is Easy to Identify
On the other side of the coin, pollution, nuclear waste and carbon emissions are unequivocally bad. Few would argue this point, and addressing these issues is, collectively, one of the major challenges of our time.
Feel-Good Factors Aside
Making money involves making choices, and making choices turns (what appear to be) black or white issues into shades of grey.
Take renewable energy, for example. The same company that owns windmill farms may also own coal-fired power plants. Wind is good; coal is bad. Or is it? Some coal-fired plants use clean coal technology. What about nuclear energy? Nuclear power produces deadly toxic waste that will outlast all current life on this planet, but it produces no greenhouse gasses at all. Similarly, hybrid vehicles, electric cars and innovative technologies that reduce fuel consumption are all good for the environment, but these modern marvels are built by the same companies that produce gas-guzzling sport utility vehicles, and they run on batteries that will eventually need to be discarded.
So where does all of this contradictory input leave a good-hearted, green investor? If you say "confused," you sure have plenty of reasons to back up your feelings. (Check out For Companies, Green Is The New Black for more on this topic.)
Best Practices Turn Grey into Good
To create a truly green portfolio, the investment screens would have to include those firms that use only renewable energy sources, house employees in buildings that are completely constructed of environmentally-friendly materials, manufacture products that have no environmental impact, hire only those employable to travel to and from work in a vehicle that emits no greenhouse gasses, and have employee cafeterias that serve only food that was organically raised. And that's just the initial screen - those companies would still have to turn profits and engage in philanthropic pursuits that support the environment. In the land of reality, all things considered, the number of companies passing these screens would probably make for a rather small portfolio. (To learn more, see Getting To Know Stock Screeners.)
When Reality and Philosophy Collide
Reality generally wins. Portfolio managers realize that few firms are perfect, so the managers focus on firms that are the best in their space. These firms may take steps to mitigate their environmental impacts, such as the use of renewable energy, the implementation of recycling programs, the minimization of their carbon footprints, the elimination of Styrofoam packaging from their products and other practical applications of green philosophies.
These companies may also engage in fair and sustainable business practices, such as adherence to all regulations, fully disclosing their practices, purchasing raw materials from fair-trade vendors that guarantee reasonable wages and tolerable working conditions for employees, and buying animals from farms that engage in sustainable land use practices. As a result, all types of businesses may have a place somewhere in a green portfolio.
Investing in Green
In a modern investment portfolio, going green is a matter of choice and a matter of degree. Green, like beauty, is in the eye of the beholder. With this in mind, evaluating potential investments in this realm requires effort and a decision about what green means to you. If you don't have the time or energy to research firms on your own, a variety of mutual fund companies offer green portfolios. Working with these firms gives you the opportunity to delegate the research to the experts - just be sure to read the fine print to make sure you know what you are buying. (For more, see Evaluating Green Equity Investments and What Does It Mean To Be Green?)