DEFINITION of 'Green Investing'
Often conflated with socially responsible investing (SRI) green investments are essentially investment activities that focus on companies or projects that are committed to the conservation of natural resources, the production and discovery of alternative energy sources, the implementation of clean air and water projects, and/or other environmentally conscious business practices. Green investments may fit under the umbrella of SRI, but is fundamentally much more specific.
Pure play green investments are those that derive all or most of their revenues and profits from green activities. Green investments can also be made in companies that have other lines of business but are focusing on green-based initiatives or product lines.
BREAKING DOWN 'Green Investing'
The term "green", despite becoming a nearly ubiquitous term, can be somewhat vague. When people talk about "green investments" they're speaking generally of investing in activities that, in a popular context, can be considered good for the environment in a direct or indirect manner. This style of investing is an offshoot of socially conscious investing, but neither type of investing implies investments that are safer than a market index such as the S&P 500. In fact, investing in "green" companies can be riskier than other equity strategies, as many companies in this arena are in the development stage, with low revenues and high earnings valuations. However, if investors find protecting the environment by encouraging eco-friendly businesses to be important to them, green investing can be an attractive way to put their money to work.
Some of the options an investor has if they want to build a green portfolio include securities, mutual funds and ETFs, and Bonds. Some of the green mutual funds the Winslow Green Growth Fund (WGGFX), Portfolio (PORTX) 21, and Green Century balanced (GCBLX). Green bonds can sometimes be offered by governments, and generate revenue for funding projects or businesses - these can sometimes be tax-free.
There are specific types of green investments that individuals can make. Some find investors are interested only in more pure play options like companies that do research into or make products like renewable fuels, and energy-saving technology. These types of investments can be much more risky - as the markets are more volatile with new technologies. Still other investors put money behind companies that simply have good business practices when it comes to the way they use natural resources and manage waste, but draw their revenue from multiple sources.
All investors should be wary of companies that simply bill themselves as green for branding purposes without following through with their pledges.