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Highlights
- It is an investment made in companies or organizations that support environment-friendly practices.
- Although profit is not the sole motive for these investors, these investments sometimes yield good returns than other traditional assets.
- In 2020, around US$270 billion of green bonds were issued.
Today, many investors are adding green stocks to their portfolios, while many others consider green equities their favorite. Green investments are gaining ground given the growth potential in eco-friendly enterprises and the growing trend for curbing emissions.
What is Green Investment?
These investments aim to support business practices that do not harm the environment. It is the investment in companies or organizations that support environment-friendly practices.
Green investment means socially responsible investing (SRI) based on environmental, social, and governance (ESG) criteria. It focuses on firms or projects that aim to preserve natural resources, reduce pollution, and adopt environmental-conscious business practices.
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Many investors invest in green bonds, green exchange-traded funds (ETFs), green index funds, or buy stocks in firms supporting green causes. Although profit is not the sole motive for these investors, these investments sometimes yield good returns than other traditional assets.
The “pure-play” green companies or projects generate most of their revenue from green business practices. These firms focus on green products and initiatives besides profit.
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Green enterprises focus on different approaches to meet their environmental and business goals. These companies may engage in research, renewable energy, eco-friendly substitutes to products, etc. Firms that reduce pollution in the production process also come under this category. Thus, some investors invest in renewable energy or energy-saving technologies, while others invest in companies that have environment-friendly business practices.
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Types of green investments
Green Stocks
The simplest way to invest in green businesses is to acquire stocks of companies having high environmental commitment. Many large firms are today focusing on clean energy sources to power growth. Hence, they should not be hard to find.
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Also, increased awareness about climate change makes it easier for companies to target environmental-conscious customers. For instance, the rise of companies like Tesla is proof of consumers' shift toward eco-friendly ways of living.
Green Bonds
Green bonds or climate bonds are fixed-income securities representing loans to banks, companies, government-backed green projects, etc.
In 2020, around US$270 billion of green bonds were issued, according to the Climate Bonds Initiative. Notably, it attracts more investors due to the tax incentives from the governments.
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Green Funds
Green mutual funds, ETFs, etc., can also be an alternate approach to green investing. These funds invest in securities that support best environmental practices besides growth.
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Finally, investors should also consider emerging sector that supports climate goals, for instance, new or clean energy, automotive, etc.
