To determine the kinds of returns that can be expected from investments in sustainable or "green" companies, the distinction must first be made between green industries and companies with green policies.

The green industry is comprised of companies whose products or services directly benefit the environment. Some of these companies may provide green products for domestic use, while others may provide products and services to help other industries operate in a more environmentally friendly way. Companies with green policies represent businesses that have adopted practices or guidelines that lessen the impact of their operations on the environment.

As environmental consciousness has moved to the forefront of our culture over the last few decades, the green industry is a sector that may be poised for substantial growth. Even so, the ability to earn a competitive return on a stock from this industry ultimately will depend on each individual company's ability to grow a profit, as well as on the price of its stock. The price of stocks in green companies, as with other good companies, can be overpriced, so investing in sustainability could come at a higher cost.

On the flip side, the effects that green policies have on stocks in conventional industries also must be taken into consideration. While companies in the green industry are poised for growth, their profits will come at the expense of the established companies they serve.

"Going green" may be the right thing to do for many companies and sectors, but doing so doesn't necessarily come cheap. Whether the goal is to clean up a factory or to switch to alternative fuels for delivery vehicles, the cost of environmental responsibility can reduce a company's profits and slow the growth of its stock. Investors should take note of the current and potential costs of going green for any company they consider adding to their portfolios.

(To learn more about green investing, check out our related articles What Does It Mean To Be Green?, Top 10 Green Industries and our Green Investing Feature.)

This question was answered by Ken Clark.

  1. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  2. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  4. What are the dormancy and escheatment rules for stock accounts?

    While the specific dormancy and escheatment rules for stock accounts vary by state, all states provide for the escheatment ... Read Full Answer >>
  5. Does mutual fund manager tenure matter?

    Mutual fund investors have numerous items to consider when selecting a fund, including investment style, sector focus, operating ... Read Full Answer >>
  6. What happens if property is wrongfully escheated?

    If your financial accounts, such as bank, investment or savings accounts, are declared dormant and the managing financial ... Read Full Answer >>
Related Articles
  1. Stock Analysis

    Why did Wal-Mart's Stock Take a Fall in 2015?

    Wal-Mart is the largest company in the world, with a sterling track-record of profits and dividends. So why has its stock fallen sharply in 2015?
  2. Investing News

    Should You Invest in Disney Stock Before Star Wars?

    The force is strong with Disney stock, as it continues to make gains going into the launch of EP7. But is this pricey stock a good buy at these levels?
  3. Investing News

    Silicon Valley Startups Fly into Space

    Space enthusiasts are in for an exciting time as Silicon Valley startups take on the lucrative but expensive final frontier.
  4. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  5. Mutual Funds & ETFs

    The 8 Most Popular Vanguard Funds for a 401(k)

    Learn about some of the mutual funds in Vanguard's lineup that are popular among 401(k) investors, and find out why you should consider them.
  6. Entrepreneurship

    4 Most Successful Indiegogo Campaigns

    Learn about some of the most successful crowdfunding campaigns on Indiegogo, which raised millions of dollars for everything from electric bikes to beehives.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Mutual Funds & ETFs

    Best 3 Vanguard Mutual Funds for Retirement

    Discover the top Vanguard target-date retirement funds with target dates in 2020, 2030 and 2050, and learn about the characteristics of these funds.
  9. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  10. Wealth Management

    The Net Worth of the Shark Tank Cast

    Discover how the richest "Sharks" on the hit TV show amassed their vast fortunes, and learn how much they have to offer eager entrepreneurs.
  1. Green collar

    A worker who is employed in an industry in the environmental ...
  2. Impact investing

  3. Green Chip Stocks

    Shares of companies whose primary business is beneficial to the ...
  4. Average Cost Basis Method

    A system of calculating the cost basis on mutual fund positions ...
  5. Sin Stock

    A stock of a company that is either involved in or associated ...
  6. Shariah-Compliant Funds

    An investment fund which meets all of the requirements of Shariah ...

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center