Green investments are financial ventures that investors make in environmentally responsible companies. Most green investments seek to promote a green economy while maximizing financial returns for investors. A green investment may also be referred to as a sustainable investment and is a type of socially responsible investment.
Green investing is usually accomplished by putting money into common investment tools, like the stock market or an investment fund, that target environmentally conscious businesses. For example, green investments may include purchasing stock in a company that promotes sustainability practices or in a business that is committed to developing alternative energy sources. While many green investment strategies focus on the renewable energy sector, a host of other green investments exist. Companies that promote energy efficiency, recycling, or water pollution and waste control can all offer opportunities for green investments.
Most major stock exchanges allow investors to trade stock in green companies. A green stock investment can involve purchasing shares in a company that directly provides environmentally friendly products or services. For example, an investor may make a green stock investment in a company that manufactures solar panels, wind energy, or biofuels. Green stock investments can also entail purchasing shares in a company that promotes sustainable business practices, even if that company does not directly provide green products or services.
Green investment funds are becoming popular investment vehicles for investors who are concerned about the environment. A green investment fund can include either an exchange-traded fund (ETF) or a mutual fund. A green exchange-traded fund typically trades like a stock on an exchange but tracks an index made up of environmentally conscious companies.
A green mutual fund is a type of mutual fund in which investors pool their funds in order to invest in businesses that benefit or support the environment in some fashion. The fund’s investment manager allocates green assets in accordance with the fund’s prospectus. Similar to traditional mutual funds, the fund manager invests the pooled capital in stocks, bonds, or other kinds of investments. Investors realize returns proportionate to their initial investment in the fund.
Green investment funds often have varying definitions of "green." Some green investment funds consider buying stock in businesses that have adopted green business models a green investment. Other funds only invest in businesses that directly promote a low-carbon and resource-efficient economy, such as companies that recycle or develop biomass or geothermal energy. Given this differing definition of green, environmentally conscious investors should carefully review a green fund’s prospectus and stock filings prior to making an investment.