What Is Green Investing?

Green investing is a conscious choice to invest in companies or projects that benefit the natural environment. Such company or project initiatives may include:

• Conserving natural resources
• Researching and developing alternative energy resources
• Initiating projects that clean up air and water
• Engaging in other business practices that benefit the environment

How Can I Invest in Green Opportunities?

Green investing can be done by investing in individual securities, or investing in managed funds (mutual funds or exchange traded funds) that have been set up as green funds. A managed fund pools stocks, bonds, and other assets. Managed green funds might have a broad agenda or a more specific agenda (such as a fund that focuses entirely on solar energy related investments).

How Are Green Funds Developed and Managed?

A green fund might screen out companies that have a poor record of adhering to environmental regulations or that have a record of water and air pollution. A green fund would likely not have holdings in such areas as:

• Nuclear power
• Coal
• Mining operations
• Companies that produce environmentally harmful chemicals

To choose holdings for a green fund, fund managers may interview company management or may also rely on governmental data concerning such companies (such as data from the Environmental Protection Agency). Fund managers may ask companies to prepare an annual environmental impact statement as part of the company annual report. 

Fund managers may screen out companies that are not sustainable. Ideally, sustainability means that a company uses fewer resources than it returns to the environment. Green fund managers may consider companies that have more sustainable practices than other companies. A store that encourages consumption by selling underpriced, cheap goods might not be part of a green fund, since this kind of consumption may ultimately add to landfills and is not usually globally sustainable.

Know the Difference between Green Investing and Socially Responsible Investing

Don’t confuse green investing with socially responsible investing. The latter screens funds or investments based on criteria concerning human rights or quality of human life. A socially responsible fund might, for example, exclude any investments that have to do with the promotion or manufacture of cigarettes. A socially responsible fund might refuse to hold shares of a company that uses sweatshops and/or treats employees poorly. A green fund is managed solely with the agenda of benefiting the natural environment.

Green Investing -- Idealistic or Pragmatic?

While green initiatives may have been considered idealistic in the past, energy resources now appear to be dwindling. Some pragmatic investors see green investing as a strategy that will succeed, in their reasoning, because green energy is needed and will be at a premium, as other energy sources such as crude oil continue to rise in price.

The exponential rise in crude oil and gasoline may necessitate that other means of energy be developed. At the same time, increasing evidence of global warming points to the need to shift from fossil fuels to renewable – or green – energy. If United States policy shifts from less reliance on foreign oil sources, there will be a need to develop renewable energy on U.S. soil.

Companies that develop solar energy and wind energy, or renewable energy projects, may be of interest to green investors. As market demand for these energy alternatives increases, they may become more affordable, efficient, and more widely used in mainstream society.

Take Advantage of a Broad Range of Choices in Green Investing

As green initiatives become increasingly mainstream, green investments can be found in a number of sectors and types of companies. New initiatives or young companies that are green may offer more risk to the investor than an established company. But larger, well established companies are also incorporating green initiatives such as developing more fuel efficient cars, or reducing company energy use.

Consider National and International Opportunities to Invest Green