Updated July 17, 2023
What is Green Investments?
The term “green investments” refers to investment activities that are focused on projects or companies that are committed to the preservation of natural resources.
Some of the initiatives for natural resource conservation include the production of alternative energy sources, the execution of projects pertaining to clean air and water, or other such benevolent activities. Green investment is one of the types of socially responsible investment.
Explanation of Green Investments
Corporations, private equity firms, hedge funds, and individuals can raise funds for green investment. Typically these funds are raised in securities, mutual funds (MFs), electronically traded funds(ETFs), and bonds. According to a report prepared by Global Sustainable Investment Alliance, nearly $31 trillion was held under various green investment instruments, constituting around one-third of the globally held assets under management in 2018.
Example of Green Investments
Now, let us look at some examples of green investments available as investment funds or ETFs for various investment opportunities.
- Water Stock: Calvert global Water fund, Allianz gi water fund, first trust water ETF, Invesco Global Water Portfolio ETF, Invesco Water Resources Portfolio ETF, Zacks Global Water Index, iShares U.S. Utilities Index ETF, and Invesco S&P Global Water Index ETF.
- Wind Power: First Trust Global Wind Energy ETF.
- Solar Energy:Invesco Solar ETF,
- Pollution Control: Invesco Cleantech ETF andVanEck Vectors Environmental Services ETF.
Now, let us look at some examples of investment opportunities offered in the form of stock equity of companies.
- Water Stock: Pacific Gas and Electric Company, Idacorp Inc., and Brookfield Renewable Partners.
- Wind Power: General Electric, Siemens Gamesa Renewable Energy, NextEra Energy Partners, and Vestas Wind Systems.
- Solar Energy: First Solar Inc., JinkoSolar Holding Co. Ltd., Sunpower Corp., Enphase Energy Inc., Vivint Solar Inc. andSunrun Inc.
- Waste Reduction: Republic Services Inc., Covanta Holding Corp, and Waste Management Inc.
Opportunities of Green Investments
There are several avenues of green investments, and some of them are briefly discussed below:
- Green Power: Today’s world faces the dire consequences of major climatic change. In such a scenario, a source of power generation for homes and industries without using fossil fuels is like a knight in shining armor. As such, it is attracting a growing number of investors every day.
- Water Stock: One of the most important natural resources available to humans. The climate changes in the last couple of years have resulted in growing fear among the people that they may eventually run out of fresh water. As such, considerable investment has been made in the sustainable collection, purification, and distribution of water.
- Wind Power: It is one of the fastest-growing renewable energy sources that has grown 75 times over the last twenty years. China, the US, and Germany are the front runners, with an installed capacity of 217GW, 96GW, and 59GW, respectively. Recently, many investors have been interested in wind farms or considering the companies producing wind turbines.
- Solar Energy: It is another source of renewable energy wherein energy from sunlight generates power, mostly used for domestic purposes with limited industrial use. In the last couple of years, the sun has risen in this industry as investors have focused on companies that manufacture solar panels and other related products.
- Pollution Control: The only way to control pollution is to reduce pollution. As such, the government has been concentrating on reducing greenhouse gas emissions from industrial set-ups, abatement of vehicle emissions, etc. To implement such large-scale measures, the government requires support in the form of investments.
- Waste Reduction: With the change in lifestyle, the need for waste reduction has increased manifold. Most of us know the things that can be recycled, but there has been a large increase in the number of products (e.g. cell phones, batteries, etc.) that can’t be recycled. In this case, it is important that we reuse them and reduce the accumulation of such waste. As such, there is a growing business surrounding these recycled items, which involves huge investments too.
Importance of Green Investments
Green investments are important because the world is transitioning to green practices, including waste recycling and power generation through wind and solar. Everyone is aware of the ill effects of climate change, and most are taking a keen interest in solving the issues at hand. In other words, green investments can be the way to ease the burden that humankind has placed on the environment.
Some of the major advantages of green investments are as follows:
- Green investment can attract a good amount of public attention owing to awareness and interest, making fundraising much easier.
- Owing to healthy demand, the borrowing costs of green investment are usually on the lower side.
- Most of green investments enjoy the benefit of tax exemption.
Some of the major disadvantages of green investments are as follows:
- The green investment market is relatively small, meaning that entry and exit in this market are not as easy as traditional investment avenues.
- At times, there is no clarity regarding the purpose of the investment.
- Currently, most companies are in their initial phase, which results in low revenues and exorbitantly high valuations. This makes the investment in such companies riskier.
So, by now, you should be able to appreciate that many investment options are available if you are interested in green investments. You can opt for individual companies or other investment instruments like MFs, ETFs, bonds, etc.
This is a guide to Green Investments. Here we also discuss the introduction, opportunities of green investments, and advantages and disadvantages. You may also have a look at the following articles to learn more –