As companies face growing scrutiny of their social and environmental impact, investment practices are following suit. Green bond purchases alone rose nearly 10 percent from the first quarter of 2017 to the first quarter of 2018, reaching $29.6 billion.
Focusing investment activities on projects and organizations that promote clean air and water initiatives, alternative energy sources, the conservation of natural resources and environmentally conscious business practices is going to be key in coming years to ensure a well-balanced portfolio. It’s imperative, however, that fledgling green investors understand which investments are likely to have the most impact while generating the best return.
Green investments can be as good for investors’ bottom line as they are for the environment, with Forbes finding that investments in companies that score higher in environmental, social and governance factors produce better returns. In fact, Marketwatch found that 26 out of the 37 green funds included on the S&P 500 remained in the top half of their categories in early February 2018 and 30 out of 37 outperformed the S&P itself despite an overall market downturn of 7.2 percent in the same period.
Much of this success is owed to the fact that green investing is often more about impact and responsibility than other market externalities, making them less vulnerable to volatility.
No investment is guaranteed, of course, but the return on green investments can be a good bet for knowledgeable investors.
Scrutinizing Green Investments
Green investments should be judged on three criteria: the green initiatives an organization undertakes, company culture and an investor’s own financial and environmental aims.
Environmentally Responsible Activities
In many cases, green investments will include organizations that are actively researching, improving or sustaining the environment such as companies that operate the renewables and recycling industries. One good example is US Concrete, a company that’s working to curb the amount of CO2 that’s created during cement production (a whopping 5% of total global carbon emissions) with innovative technology and eco-friendly materials that can reduce emissions by half.
Organizations that aren’t directly involved in green initiatives can still be a part of a green investment portfolio. These companies are often dedicated to utilizing recyclable materials or renewable energy to run their operations or have a history of supporting green projects and measures. Home Depot is a leader in this arena with an Eco Options program that improves stores’ energy usage, sources environmentally friendly limber and provides recycling centers for paper, plastic and aluminum as well as CFL bulbs, batteries and cell phones, batteries.
Ultimately, the best opportunities for green investment are those that satisfy both environmental and financial needs. Identifying investments that share green principals similar to an investor’s own can be accomplished by checking the news and social media chatter about an organization to get an idea of its activities, successes and reputation.
Look to prospectuses and annual stock filings for the official word on an investment’s performance. While metrics such as earnings per share are important, it’s vital for investors to take other factors into account. Investments that offer a strong return on equity, for instance, often point to efficient, stable companies. Investors can also create a mock portfolio to assess the historic, current and future performance of selected investments.
Identifying green investments across a range of industries can help diversify your portfolio. Investors interested in buying stocks, for example, can choose from renewable energy organizations including First Solar as well as renewable chemical companies such as Braskem. Investors can also find green investment opportunities in the organic food and forestry sectors. Similarly, green exchange-traded funds can provide investors with the same level of diversification in a more hands-off package.
Even cryptocurrency is going green, with GEAR Token opting for a two-pronged, closed-loop approach to curbing cryptocurrency’s 70.1 TWh (terawatts) per year habit, equal to 0.31 percent of the world’s energy consumption. This system includes green-energy mining solutions and strategies for investing in green energy and other environmental initiatives across industries.
Lauren Treadwell is a fintech writer and enthusiast specializing in cryptocurrencies, blockchain technology, innovative investment strategies and financial service startups.