A:

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.

RELATED FAQS

  1. Are money market accounts for short-term investments a good idea?

    Learn whether money market accounts are good ideas for short-term investments. Money market accounts combine aspects of a ...
  2. Why do bond coupon rates vary so greatly?

    Learn about the two major reasons that cause bond coupon rates to vary so dramatically and what role coupons play in the ...
  3. What is the best ETN for trading mid-cap stocks?

    Explore the world of exchange-traded notes (ETN) and some of the potential risks involved for investors. Find out how ETNs ...
  4. Is it better practice to use a stop order or a limit order?

    Discover whether it is considered best practice to use stop losses or limit orders. Both options have their advantages and ...
RELATED TERMS
  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

Related Articles
  1. Trading Strategies

    The Top U.S. Regulated Stock Brokers

  2. Mutual Funds & ETFs

    Leveraged S&P 500 ETFs: Are These the ...

  3. Mutual Funds & ETFs

    Are These 3 Agricultural ETFs, ETNs ...

  4. Investing

    These Investments Have Soared in 2015

  5. Investing

    3 Top Pharma Stocks that Pay Regular ...

Trading Center