According to Wikipedia, green investing is a form of socially responsible investing where investments are made in companies that support or provide environmentally friendly products and practices. These companies encourage new technologies that support the transition from carbon dependence to more sustainable alternatives.

Quite simply, green investing seeks to support business practices that have a favourable impact on the natural environment and is a powerful way for you to align your investments to drive change towards a more sustainable world. Green investments focus on companies that are committed to the preservation of natural resources. Some green investment examples include the production of alternative energy sources, hydropower, wind power, solar energy, geothermal power, waste and recycling, sustainable food production, and pollution control, amongst others.

The definition of green investments is still somewhat of a grey area, and it can vary depending on whom you ask. For example, some experts believe that a company can only qualify as a green investment if it’s directly involved in environmentally beneficial products or services, like renewable energies or compostable materials. Others would argue that any company that has eco-friendly policies and practices qualifies as a green investment. It’s up to each individual investor to determine what constitutes a green investment to them and to invest accordingly.

The world is fast becoming green, with an increasing focus every year on the importance of climate change and its wide-reaching impacts. Most of us have made an effort to make changes to our lives, from recycling, to using sustainable grocery bags, to driving electric cars, and more. In fact, green investing, once considered a niche sector, has grown significantly in the last few years. As with any investment, there are advantages and disadvantages to green investing that you should be familiar with.

Green Investing Advantages

• Green investing offers strong potential for long-term growth. According to a 2022 study by Morningstar, a renowned US-based investment research company, there is evidence that investing in green investments can match or beat the profits of more traditional assets.

• There are a wide variety of investment options for green investing, including stocks, bonds, mutual funds, and exchange-traded funds, amongst others.

• Due to its increasing popularity and public attention, green investment can attract a high level of funding from investors.

• Also due to this high demand for green investments, borrowing costs are typically lower than other investment vehicles.

• Many green investments benefit from tax exemptions.

Green Investing Disadvantages

• Because many green investment companies are in the development stage, they can be at higher risk than their more developed counterparts.

• Although the green investing market has grown considerably in recent years, it is still relatively small compared to other, more developed markets, thus sometimes making it more difficult to enter and exit quickly and easily.

• Some companies make an effort to greenwash, which is a rebranding attempt to appear more green investor friendly than they actually are, so it is imperative to do your research before investing.

• There are many interpretations of what constitutes green investing, so ensure that your investment choices meet your needs and expectations.

Almost anyone can get started with green investing, and there is a wide variety of options to suit your values and financial goals. One popular way to invest is to buy shares of green mutual funds, which invest in a diversified portfolio of green companies, thus enabling investors to both diversify and reduce risk. As always, we urge you to do your research and look at a mutual fund’s assets before investing your hard-earned money. If having a positive impact on the environment is something that is important to you, talk to your financial advisor today to get started.

Source Morningstar, “Sustainable Funds U.S. Landscape Report 2021: Another Year of Broken Records”