Green Investing: The Complete Guide

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For most people, helping out the environment doesn’t mean completely overhauling the way they live. It simply means choosing more sustainable ways to do what they already do. Like buying reusable grocery bags or purchasing clothes from environmentally conscious companies, green investing is a powerful way for you to drive change towards a more sustainable society.

Under the umbrella of socially responsible investing, green investing is the strategy of investing in environmentally conscious companies that make an effort to conserve natural resources either directly or in their business practices.

While this type of investment offers the benefit of helping out a cause you believe in, it’s still important to consider all the risks and rewards associated with investing your money. The stocks listed are meant to serve as examples, not recommendations.

Below is an in-depth guide to what green investing is all about, and you can also jump to our infographic for a quick summary.

Table of Contents: 

What Is Green Investing? 

The term “green” is commonly understood to mean environmentally friendly. But what exactly makes a company green? It’s important to understand that there are a variety of interpretations of the term.

Pure-play options include companies whose mission is to research and develop new technologies or processes that directly benefit the environment. Examples include companies that make solar panels or technologies to remove microplastics from the oceans.

Many people also broaden green investing to include companies whose primary goal and revenue stream is not environmentally motivated, but engage in resource-saving practices and institute eco-friendly policies. There are many gray areas when it comes to green investing, as a company can derive most of its revenue from environmentally unfriendly practices like logging or refining oil, but still be considered environmentally conscious within the industry. Ultimately it’s up to you and your investing goals to determine what “green” truly means to you.

The other half of green investing involves understanding the many types of investments available to you. When talking about investments, many people think of directly buying stock from companies, but there are many other ways to invest your money. Aside from picking individual companies stocks, there are also green mutual funds, bonds, securities, and Exchange Traded Funds (ETFs).

What Is Greenwashing? 

Since environmentalism has become so popular, companies are making more of an effort to appear to care about their impact — look out for ones that only promote surface-level practices while still engaging in harmful activities that they don’t advertise. Be wary of broad marketing campaigns that tout non-specific claims, or emphasize one small green initiative. Here are some specific things to look out for:

  • Vague green terms in marketing materials like “eco-friendly” and “environmentally safe.”
  • Green imagery on packaging, like trees or flowers. Images are often chosen specifically for their subtle impact on your perception.
  • Claiming to be “Best in Class.” When it comes to certain industries, being the best among the worst is hardly a strong claim.
  • Outright lies or misdirections. Companies will fabricate labels and awards that make them seem greener, or directly lie about their product’s impact on the environment. If the proof to any claim seems hard to find, that may be because it’s not true at all.

Types of Green Investments 

The beauty of green investing is that you can choose how involved you want to be in selecting green initiatives. You can choose to back a particular movement or energy source by investing in one company, or back a broad range of sustainable movements. Here are some of the types of green investments:

Hydropower

98 percent of all of the United States’ renewable energy is hydropower, and hydropower accounts for 7 percent of all the energy produced in the United States. The state with the largest capacity for hydroelectric power is Washington State, due to the Grand Coulee Dam. Here are a few companies in the hydropower industry:

Stocks: 

  • Brookfield Renewable Partners (BEP)
  • Innergex Renewable Energy (INGXF)
  • Hydro One Limited (HRNNF)

Wind Power

Harnessing wind power provides a clean and renewable energy source that’s growing in popularity worldwide. The Bureau of Labor Statistics estimated a 108 percent growth rate of wind turbine technicians between 2014 and 2024. Businesses that allow you to invest in wind power include both wind farms and companies that design and manufacture the turbines themselves. Here are few examples:

Stocks: 

  • NextEra Energy Partners LP (NEP)
  • Siemens Gamesa (GCTAY)
  • Vestas Wind Systems (VWDRY)

Funds:

  •  First Trust Global Wind Energy Index Fund (FAN)

Solar Power

Solar power currently accounts for 1.6 percent of all the energy generated in the United States. If you believe in the growth of this energy source, you may want to consider investing in companies that install, manufacture, or research the technology surrounding them. Here are a few stocks and funds in this field:

Stocks:

  • First Solar (FSLR)
  • JinkoSolar Holding Co. Ltd. (JKS)
  • Sunpower Corp. (SPWR)

Funds:

  • Invesco Solar ETF (TAN)
  • VanEck Vectors Solar Energy ETF (KWT)

Geothermal Power

Harnessing the power of the heat of the earth, geothermal power uses steam or heated water to drive generators. Though not the most common renewable energy source, the United States produces the most geothermal energy in the world — it accounts for .4 percent of electricity generated. Here are some geothermal companies:

Stocks: 

  • Calpine Corp. (CPN)
  • Ormat Technologies Inc. (ORA)
  • LSB Industries (LXU)

Combating Pollution

Aside from moving towards greener sources of energy and methods of production, there are also companies dedicated to controlling harmful chemicals that are emitted from industrial factories and cars. Many of these companies specialize in developing technologies to control emissions. These include:

Stocks:

  • Fuel Tech (FTEK)
  • Advanced Emissions Solutions (ADES)
  • CECO Environmental Corp (CECE)

Funds:

  • Market Vectors Environmental Services ETF (EVX)
  • Invesco Cleantech (PZD)

Sustainable Food Production

This includes organic farms and sustainable fishing practices known as aquaculture. Green food production companies aim to combat overfishing of the ocean and promote responsible farming practices. These include forgoing harmful pesticides and opting for natural animal management techniques that avoid antibiotics. Companies in this field include:

Stocks: 

  • Mowi ASA (MNHVF)
  • United Natural Foods (UNFI)
  • Hain Celestial (HAIN)

Waste and Recycling

People produce a huge amount of waste each year, and unless any preventative measures are taken, much of that ends up in landfills or our water sources. Green companies in waste and recycling aim to reuse materials like plastics and paper rather than discard them, plus promote responsible waste management. Here are a few in this field:

Stocks: 

  • Waste Management (WM)
  • Covanta Holding Corp (CVA)
  • Clean Harbors, Inc (CLH)

Water as a Resource

As one of the most valuable resources on the planet, the collection, distribution, and cleaning of drinking water is a vital industry. As an estimated 1.4 million Americans are impacted by water scarcity, there is also a strong indication that the need for these companies will grow. Here are some companies in this field:

Stocks: 

  • American Water Works (AWK)
  • Aqua America (WTR)
  • ITT Industries (ITT)

Funds: 

  • Calvert Global Water Fund (CFWAX)
  • Invesco Water Resources (PHO)
  • First Trust Water (FIW)

How to Add More Green to Your Portfolio

Green investing doesn’t require that you invest only in companies with a purely environmental goal. You can take the time to look into the practices of other companies, and choose to invest in ones that make a solid effort. Many experts recommend that your investment portfolio should consist of many different investments at a variety of risk levels across many industries. By applying this financial advice to socially responsible investing, you can take a holistic approach to how your investing practices impact the environment.

Aside from investing solely in pure-play companies, you make an effort to switch investments to companies that have a cleaner track record overall. You can also change to greener Certificates of Deposit and get involved with how your retirement fund is invested.

Take the time to look into the companies you’re invested in, as well as divest from fossil fuels and other industries that directly harm the environment. Ultimately, you’re in charge of the impact you’d like your investments to have and in what areas. Remember that some companies may make an effort to “greenwash” their practices in order to appear more environmentally friendly.

Other Ways to Leverage Your Investments

If you aren’t comfortable investing your money in the traditional sense, or are looking for additional steps to take, there are plenty of ways to make your money work for the environment.

Use consumer power: Everything you buy, from food to handbags empowers the companies you’re buying from. Choose recycled materials and environmentally conscious products when possible to drive change.

Microfinance a green startup: Through your network or a microfinance platform, you can offer small loans and credit to startups looking to help the environment.

Get vocal with your organizations: Rather than investing money, use your time to convince organizations like schools to divest from companies that negatively impact the environment.

Utilize shareholder activism: Some types of shareholders can vote on board members and proposals that support green initiatives.

Contribute to crowdfunds: Green startups, projects, and inventions often turn to crowdfunding for their initial round of financing. Look for a cause you believe in to contribute any amount you can.

Invest your time: Volunteer at a local garden maintaining plants, or spend time cleaning up a green space in your community. Whatever you contribute to the world around you helps.

Additional Resources

Sources: EIA | Treehugger | GreenAmerica | Earthshare |  Investopedia 1, 2, 3 | Bloomberg | GSI Alliance

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