You might be doing all the right environmental actions through volunteering, consumer choices, and eco-friendly habits. But what are you doing with all the money you’ve saved up? A great way to be pro-actively environmentalist with your money is to invest it with green businesses.
Benefits for the environment: Sustainable businesses rely on investments to start out as a company or to invest in expensive environmental projects. By investing in sustainable companies, you’re basically using your wallet to vote for green jobs and green products.
Benefits for green industry: It’s always nice to support fellow environmentalists in the work that they do. Investing in green businesses gives them an economic advantage over other businesses, since it gives them more capital to expand in the market and it gives an incentive for other companies to turn green.
Benefits for your wallet: Energy efficiency1, socially responsible policies2, and resource recycling3 are quite profitable business models in the long-run. If you invest wisely in the green sector, you can expect to receive some greens of your own.4
Time and effort: Low to High
Green investing can take up as much time as you want it to, and shouldn’t take any longer than non-green investment planning. Although even the laziest investors should probably do a little research into the fund or bank that they want to invest their money in, more active investors can learn to spend all their time continually researching and trading stocks.
Cost: Low to High
You can choose to invest however much of your savings as you want. The more you invest, the more profits you can make.
How to Start: Green investing is pretty simple. It’s just like normal investing, except that you’re a little pickier about what you invest in. The most straightforward way to invest in a green company is to buy their stock on the stock market.
1. Get a stockbroker: For those who have never bought stock before, the first step is finding a stockbroker.5 The easiest way to do that is to sign up for a well-known broker online such as E-trade, Fidelity, or TD Ameritrade.6 Using the money you put into the account, the stockbroker will buy your stocks for you. You can also indirectly buy stock through exchange-traded funds, mutual funds, and investment clubs, which we’ll get to in a little bit.
2. Prioritize Your Values: Now that you have the tools to buy stock, make a few rules to narrow down what companies you’re willing to invest in. First, rule out industries you absolutely don’t want to support for environmental or moral reasons. Second, pick out what environmental or social practices are the most important to you. Since very few businesses are 100% environmentally perfect, this strategy allows you to support companies that are taking the most pro-active steps towards sustainability. For more on prioritizing your green investments, check out the Greeniacs article on green investing.
3. Stay Informed: If you’re going to be actively trading your stocks, you should probably stay up-to-date on financial news, especially in the green sector. Subscribe to a financial newspaper or financial news website. Here’s a great website for news on the green sector.
Things to Avoid: Although it’s great to support green companies, sometimes companies that claim to be green aren’t always that green. And even some truly green investments may still be pretty risky. Here’s what to watch out for:
1. Greenwashing: All corporations want to advertise their green credentials, but sometimes they’re not as green as they make themselves out to be, otherwise known as “greenwashing.” That means your investment might be rewarding the wrong kind of practices. Most commonly, greenwashing companies advertise a single environmentally-friendly practice but still having an overall business plan that is bad for the environment. Be sure to research each environmental claim from the company to make sure it’s not unsubstantiated or using false or misleading facts.7 Here’s a list of the 10 worst greenwashing companies.
2. Risky Sectors: Although it’s impossible to predict, certain sectors have a tendency to be highly fluctuating. Fuel cell technologies, for example, have frequently been overbought, creating volatile up-down cycles with the stock.8 Also, expect a greater risk with smaller, younger green businesses, since their stocks are more likely to either boom or bust.9 Of course, if you’re really enthusiastic about a new technology or company or you’ve also invested in some safer investments, feel free to invest in these riskier sectors.
3. Not Diversifying: Although it might be tempting to research only 3 companies and invest all your money into them, even for less risky companies, this is a pretty risky move. Instead, you should be tracking between 15-25 stocks. If you don’t have enough money for that, you should be mostly investing in mutual funds.10
Finding Stocks: Now that you know what kind of companies you want to invest in, you need a place to put your money. But where do you find publicly traded green companies? Green indexes, green stock lists, and companies that have CSR reports are good places to start.
1. Green Indexes: Green stock indexes are measures of businesses that have been certified for their degree of sustainability and strong financial outlook. You can use them to find solid green companies. Here’s a sample of a few green indexes:
◦ Sustainable Business’s Top 20 (SB20)
◦ Dow Jones’ Sustainability Index (DJSI)
◦ Wilderhill Clean Energy Index (ECO)2. Green Stock Lists: Many websites have much more comprehensive lists of sustainable companies, along with basic descriptions, which you can use as a starting point for doing your own research:
◦ EcoBusiness Links’ Green Energy Stocks
◦ Newsweek’s Green Ratings for the 500 largest US companies3. CSR Reports: Although most major corporations usually aren’t known for being environmentally friendly, they are a somewhat safer investment than many unknown smaller companies. Pick a few that you like. Then, to do more research on their sustainability efforts, take a look at their corporate social responsibility report. You can usually find these online at their website, and these detail the company’s priorities.
Third-Party Investors: If you don’t want to do a lot of research, trading, and risk assessment, try investing in green indexes, clubs, or funds that do all that for you. Not only is this less work for you, but these kinds of investments are much lower risk. That’s because they pool their investments and spread the risk across many different stocks at once, so even if one company’s stock drops, it’s not a huge loss. On the flip side, if a company’s stock skyrockets, it also won’t be a huge gain. These are perfect for longer-term investments.11
1. Mutual funds: Mutual funds are basically a collection of stocks and bonds.12 Some great green mutual funds are Neuberger Berman Socially Responsive (NBRSX), Winslow Green Growth (WGGFX), New Alternatives (NALFX), and Domini European PacAsia Social Equity (DUPFX).13
2. Exchange-traded funds: Exchange-traded funds, or ETF’s, are basically mutual funds that trade based off of a particular index.14 For example, the ETF for ECO is PBW.15 Others include the Domini 400 Social Index (DSI), PowerShares WilderHill Progressive Energy Portfolio (PUW), and PowerShares Cleantech Portfolio (PZD).16
3. Investment Clubs: Investment clubs are similar to mutual funds, but with a lot less people. This allows an individual investor to have much more control of and input into the selection of businesses in which the club invests. If you want to make a green investment club, get a couple of your friends together and pool your money to invest in a bunch of green stocks. It’s as simple as that!17
Investing Outside the Stock Market: The stock market is just a place to invest in publicly traded companies. But there are plenty of opportunities to invest your money in a worthwhile environmental cause without all the hassle of the stock market.
1. Green Bonds: Bonds are basically small units of government debt that pay interest. Green bonds are bonds that support government projects that help the environment. Although they’re generally much lower risk than stocks, they also have a much smaller return.
2. Green Savings Accounts: Like regular bank accounts, green savings accounts are just money that you deposit in the bank. Banks that offer these will loan your money out to environmentally friendly businesses. The bank is basically doing all the work and taking all the risk of green investing for you.
3. Green Money Market Accounts: Similar to green savings accounts, money market accounts are basically bank accounts. They’re better in that they offer higher interest rates, but worse in that they require a higher minimum investment balance and are limited to a certain number of withdrawals a month.
4. Green Certificates of Deposit: Similar to green bonds, green certificates of deposit are investments for a predetermined time, between a month and 5 years, with a fixed interest rate. Although interest rates can be higher than the other bank options, there is also a high penalty for withdrawing early from the account.18
Whether you love or hate financial risk, there are plenty of green investing options for you to choose from. It’s always a great thing when you can support the economy, the environment, and your savings all in one transaction. Now go invest in your future and the future of our planet!
