Green investing has become a phenomenon in the financial industry and is expected to be one of the fastest sectors to rebound once the current economic turmoil has run its course. A recent study found that more than 50% of the world’s wealthiest investors — that is those with greater than one million dollars in non-real estate assets — are making significant investments in renewable energy and green technologies.
The most successful investors do their due diligence. Here are 10 tips for investing in green companies:
1. DON’T FORGET THE OLD RULES
Remember the old rules; they still apply: Do your homework. Don’t invest money you can’t afford to lose, and don’t put all your money into any one sector. Throughout the economy, companies large and small are chomping at the bit to advertise themselves as green — and cash in on what many believe will be a revolution in energy, household products and other areas. The American consumer wants to be involved in it, and big companies are increasingly interested because they desperately need growth themselves.
2. CHOOSE A GREEN INVESTING SECTOR
Green investing sectors include renewable energy, organic and natural foods, and pollution controls and environmental cleanup. Each of these sectors is further broken into subgroups and sub-subgroups. Choose the sector(s) which best aligns with your environmental and personal interests and scout for the best financial growth opportunities within your chosen category of interest. Remember that diversification is key to any successful investment strategy. You can protect your funds and bolster multiple environmental sectors, through diversifying your portfolio by investing in a variety of green sectors.
3. SCREEN FOR GREEN
Create guidelines and boundaries for yourself when choosing which types of environmentally focused companies to invest in. For example, some green-minded mutual funds screen out things like tobacco and military products, but not nuclear power and clean coal technology. In addition, when investing in mutual funds decide whether you want to go with a fund that uses a positive screen or a negative screen when selecting which companies to back.
4. BEWARE OF GREENWASHING
Greenwashing is an important concept to keep in mind when evaluating all investment opportunities, but is particularly pertinent when deciding whether or not to financially back a specific company. Ask yourself: “What identifies something as a green product or service?” When reviewing a company’s green claims, do your research. Determine what is really involved in the technology they are developing or the claims they are making, and filter by how these answers line up with your personal values. Remember if a company’s green claims about their products, services, and operations turns out to be false, you will suffer too when the company’s stock plummets.
5. CREATE A GREEN INVESTMENT STRATEGY
As with traditional investing, personal green investment strategies are diverse and can be difficult to navigate. You are faced with many options when looking for new investment opportunities. Fortunately there are a plethora of resources available for you to help search out the best opportunities. Some tips:
• Ask Questions – Look into how your potential company deals with problems, how they relate with the community, and whether their environmental policies are green or just greenwashing.
• Peruse Sustainability Indexes – Indexes, such as the Dow Jones Sustainability Indexes are useful tools to gauge not only a company’s financial but their environmental performance.
• Read Annual Reports and CSR Reports – Companies usually have their annual and Corporate Social Responsibility (CSR) reports available to download through their individual websites.
• Consult with a Green Investment Analyst – Many investment analysts are beginning to specialize in green and socially responsible stock options. For those with the means, this route can offer you a personally tailored experience when delving into green stock options.
6. BECOME A “STAKEHOLDER”
Buying green stocks has become a sound decision for both the planet and for your pocket book. In 2007, the Dow Jones Sustainability Index rose by 10.4 percent, outperforming the Dow Jones Industrial index, which only rose by 6.4 percent. As more and more shareholders continue to opt for green stocks, the growing trend has not only become an indicator of increased value in these green companies, but has finally solidified a place for green industries within the market as a whole. What better time to become a shareholder in one of these future forward sustainable enterprises, helping the company, their environmental efforts, and your finances to grow!
• Stakeholder – Rather than simply holding shares in a company, take a vested interest in your investments as a stakeholder. Stakeholders can affect or be affected by a company’s actions. Whether you own stock in a company that already has a strong positive environmental record, or in a company that desperately needs environmental reform, voicing your green opinions can push the buck for stronger environmental reform.
• Exercise your Voting Rights – As a holder of common stock in a company, you are eligible to vote and propose changes within that company. As an individual, unless you are the holder of a great deal of shares in a company, your vote may seem quite small. You may, however, be able to reach out to other likeminded shareholders to forming a larger voting body, in order to fight for sustainable reform within the company.
7. CHECK OUT VENTURE CAPITALISM
For those with more cash — several thousand to upwards of a million dollars — available, and also an interest in really putting your money where your mouth is, consider backing a venture capitalism firm. Green VC firms (Green Street Capital Partners, for example) are few, but they are gaining ground by focusing on areas such as: renewable energy, green technology, organics and public health related industries.
8. DON’T FORGET THE OLD CLICHES
Remember the old cliche, knowledge is power? Well, it is, and one of the most important tips for finding green investments is information and knowledge. When you are well informed you are more powerful and the outcome of your investments will be more likely to succeed.
Keeping yourself informed will prove successful for you and your business.
9. THINK SUB-SECTORS
The first and perhaps most obvious is energy. There are people developing sustainable fuels for cars and pushing to increase the amount of solar or wind energy that powers homes and businesses. That also extends to companies developing power cables to deliver that energy to urban centers.
Another sub-sector of the so-called green economy involves water.
The Environmental Protection Agency says climate change and aging facilities promise to spread water shortages through most of the nation — an issue that afflicts many parts of the globe. But there are companies attempting to develop efficient ways to desalinate ocean water to increase the supply. Other firms are working on recycling water for industrial use.
Another obvious area is transportation. Air pollution standards and consumer demand are pushing automobile companies toward making more low-emission or zero-emission cars, including hybrids and electric vehicles. If gasoline prices go up, demand for such vehicles can only rise. There are bicycle manufacturers, scooter makers, bus companies and others that hope to profit from continued concern about pollution and the price of oil.
No one can map out where next-generation vehicles are going, and that’s just the start of the riddles green investors face.
10. KNOW A GREEN COMPANY’S STRENGTHS
Plenty of provocative but unproven ideas are out there, which means that potential shareholders should be extremely careful. Consider investing in companies with a clear competitive edge, such as those whose products are most efficient. Make sure the company is well capitalized, with enough financing to weather several slow years of operations.
Invest in companies with a clear competitive edge, such as those whose products are most efficient. Look for proven innovation as a primary factor when investing in green.