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May 5, 2010What is Green Investing?
Green Investing has become quite prominent these days because of the concerns with climate change,energy security,peak oil and the deleterious effect of fossil fuels on our environment .The BP Oil Spill is a stark reminder of the devastation that can be caused by our fossil fuel dependence.Green investing s a broad term which is generally divided into 2 categories
- Socially Responsible Investing (SRI)
- Clean Technology Investing
Socially Responsible Investing (SRI)
These type of investments involve investing in companies that are socially,culturally,ethically and environmentally responsible .Organizations with a track record of charity,non discriminatory and equal treatment of employees and fair treatment of suppliers and customers are the focus of SRI. This form of investing excludes companies which are considered to have a bad influence on society.Companies involved in tobacco,alcohol,exploitation of indigenous people,firearms etc are a strict no-no.Note Shariah Investing has a strong overlap with this type of investing as well.Some big funds like the Sovereign Fund of Norway also practice this form of investment.
Clean Technology Investing
This form of investment involves investing in companies that benefit the environment and help in preventing global warming,climate change promoting efficiency,productivity and cleanliness.Clean Technology can be defined both broadly and narrowly.Broadly it can be divided into categories like
- Water
- Agriculture
- Renewable Energy
- Environment
- Clean Transportation
- Efficiency
On a more narrow level Clean Technology investing is focused on investing in sectors like
- Solar Energy
- Wind Energy
- Geothermal Energy
- Nuclear Energy
- Energy Efficiency
- Smart Grid
- LEDs
- Energy Storage
- Electric Vehicles
How to Invest
The Green Industry is a relatively new industry and involves a lot of risk/volatility.Investing in individual companies involves a lot of risk.There are 3 different ways you can invest in this industry
ETFs
There are a number of sector specific and broad ETFs which target this form of investing and involves relatively less risk . Some of the better broad ETFs which invest in all of the above sectors are PBW and PBD.More risk taking investors can consider investing in sector specific ETFs like TAN (solar ETF) ,FAN(Wind ETF),NLR (Nuclear Energy ETF),PHO (Water ETF) , PTRP (Clean Transporation).
Initial Public Offering
Investing in IPOs of green companies can be highly risky as a number of these companies are cash strapped , loss making and have a high probability of going bankrupt.Note green IPOs are being offered not only in the US but across the world in emerging countries like China and India
Individual Companies
For the risk averse investor,you can consider investments in large established companies which are making a strong entry into the green industries . There are also some good pure play companies in Solar (Trina Solar,First Solar ),Wind (AMSC) and Energy Efficiency(Johnson Controls) but these involve more risk.