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Money doesn’t grow on trees but that doesn’t mean that going green and making green are mutually exclusive. With the economy locked in a choke-hold due to its over dependence on gas and oil, there is a growing interest in alternative energy. For the past several years, more companies around the world have realized how important it is to protect and preserve our planet, spurred on in part by the possibility of a tax incentive. In an effort to motivate corporations into jumping on the green bandwagon, in 2005, Congress passed an Energy Bill that offered subsidies for companies implementing clean energy technologies. Companies like GE have embraced the change by implementing environmentally friendly policies, while companies like the wind turbine company Vestas (VWDRY) developed several new environmentally advanced technologies of its own. For you, the environmentally conscious and socially responsible investor, there are now plenty of options available.
Green investments are investment vehicles such as stocks, bonds, ETF’s and mutual funds of companies that produce energy efficient or environmentally friendly products. Businesses that have modified all or part of their facility operations to become environmentally conscious are also considered to be part of the green movement. Some, like the French mineral water company, Vittell, even pay farmers on the land above its equifiers to use fewer chemicals in an effort to diminish the possibility of chemicals seeping into the water. With President Obama calling for growth in employment opportunities in corporations that manufacture solar panels, wind turbines and energy efficient equipment, it is likely more corporations will fall into the green investments category. Companies going “green” are implementing what is known as socially responsible initiatives (SRI). These include anything from promoting recycling programs to introducing electric cars or protecting parts of the rainforest from deforestation.
For a company to be considered green, fund managers screen them to make certain the company fits the particular funds’ philosophy or cause. For example, an environmentally neutral fund might eliminate industries from its’ portfolio which perform animal testing, manufacture weapons or have significant environmental issues. The Domini 400 Social Index (KLDDSI), which was the first socially responsible index launched in 1990, follows 400 large cap US corporations selected based on social and environmental standards. The Portfolio 21 (PORTX) fund concentrates on small-cap (less than 1 billion in market capitalization) clean-techs and large-caps with sustainability programs. The Social Investment Forum, a national membership association that focus on socially and environmentally responsible companies, keeps track of the financial performance of socially responsible balanced, bond (fixed income), equity large, medium and small caps and international global foreign funds. Socially responsible investments can also be listed as mission investing, ethical investing and sustainable investing. According to the Social Investment Forum, as of 2007, there were 260 socially screened mutual fund products in the US with assets of $201.8 billion compared to 55 SRI funds in 1995 with only $12 billion in assets. Given the growth in the number of companies going green or adopting green policies, it is likely you will see many more green investment vehicles.
The green sectors are alternative energy which is energy generated from the sunlight, wind or water that can be replenished naturally, carbon offset or carbon neutrality which means maintaining the balance between producing and using carbon-dioxide emissions by let’s say, planting trees, and energy efficiency or cooling, heating and lighting of buildings more efficiently. Some other sectors include environmental tech, that is, specializing in air and water quality and waste management, reducing emissions by pollution control and carbon capture and green projects that involve education, food distribution and recycling programs. Several companies are making great strides in the way they use our current technology to reuse products, while others have developed new and improved methods. Nova Biosource Fuels (NBF) for example, takes slaughterhouse leftovers and turns rendered fat into diesel fuel. An alternative fuel company, Gushan Environmental (GU) makes biodiesel from used cooking oil at plants throughout China. United Technologies (UTX) develops more efficient helicopters and jet engines while First Solar (FSLR) makes the solar industries lowest-cost thin film solar panel.
Investing in any stock can be risky and green stocks are no exception. It is important to do thorough research before putting money down on any particular stock, bond, fund or whatever investment vehicle you choose. Many of the green companies are still new and riskier due to their innovative technologies. A good way to get your feet wet is by balancing your portfolio adequately with low to moderately risky investments, this will help diversify and prepare your portfolio to weather any stock market storm.