Highlights

• A green company applies environmentally friendly approaches to conserve the environment.
• Green investments can be done in various forms including electronically traded funds, securities, and others.
• SRI is an investment strategy that revolves around developing financial returns by positively impacting society.

A green investment fund invests in companies that follow environment-friendly approaches and the companies that take responsibility for conserving the environment are called green investing companies. In this article, we will learn about green investing.

Green investing

Green investing is defined as socially responsible investing that concentrates on sustainable practices or products of companies. A green company applies environmentally friendly approaches to conserve the environment. It follows business practices that impact the environment, including socially responsible investing (SRI) and environmental, social, and governance (ESG).

Solar energy, waste reduction, water stocks, green transportation, and pollution controls are examples of green investments. Green investments can be in various forms including, mutual funds, electronically traded funds, securities, and others.

SRI is an investment strategy that revolves around developing financial returns by positively impacting society. The socially responsible investing companies ignore the corporations that indulge in business which harms the environment. These companies are nuclear power, tobacco production, gun manufacturing, and others.

The ESG criteria is used for socially responsible investing that concentrates on developing value for shareholders and investors by positively impacting the environment. To support SRI and ESG practices, some investors purchase green index funds, green funds, and green bonds.

Also read: Should gas and nuclear energy be labelled under green investments?

Green investing companies

Green investments can be defined as investments in corporations that also consist of another line of products and business but mainly concentrate on green products and sustainable practices.

Companies that aim to improve people’s lives and the environment are considered green investment companies. They include Greenlane Renewables Inc (TSX:GRN), TransAlta Renewables Inc (TSX:RNW), Brookfield Renewables Partners L.P. (TSX: BEP.UN), Algonquin Power & Utilities Corp (TSX:AQN), Alvopetro Energy Ltd. (TSXV:ALV), Good Natured Products Inc. (TSXV:GDNP) and others.

Also read: TSX sinks as energy index’s 14-day green streak ends, bond market soars

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Green investing types

Green equities

These are considered a simple form of green investing where an investor can buy a stock of a company that positively impacts the environment and is strongly committed to following environmental practices.

Green bonds

Green bonds are also known as climate bonds. These are fixed-income securities that are committed to developing capital for environment-friendly projects. The projects can be a pollution prevention project, sustainable agriculture, sustainable water management, ecosystem conservation or clean water project.

Green funds

This is a type of mutual fund that is committed to investing in companies that aim to minimize carbon footprint and improve communities, employees, and investors' lives.

Also read: Top 5 Canadian green stocks to buy in 2022

Advantages of green investments

A company can raise funds in via mutual funds or securities through private equity firms and hedge funds. It can also raise funds by drawing public attention through spreading awareness about the green economy.

Disadvantages of green investments

It is a small market where entry and exit are difficult in comparison to other investments. Due to this, it lacks as much liquidity, relatively speaking.

Some companies in the starting phase of development generate low revenue. So, investing in such companies can be riskier than others.

Some clean energy ETFs in Canada

• Harvest Clean Energy ETF (TSX:HCLN)
• BMO Clean Energy Index ETF (TSX:ZCLN)
• IShares S&P/TSX Capped Utilities Index ETF (TSX:XUT)
• BMO Equal Weight Utilities Index ETF (TSX:ZUT)

Also read: 2 Green Stocks To Buy As Canada Increases 2030 Emissions Target

Bottom line

ESG and SRI are growing increasingly in importance and the sector seems to have a bright future. However, investors should research properly and conduct due diligence before initiating any investments in these green companies.