Eco-investing is an attempt to profit from the gradual transition from carbon-based energy consumption to systems that rely on renewable or carbon-neutral sources of energy. This avenue also includes investment in companies that offer environmentally friendly goods or services to the market place. The terms eco-investing, green investing and socially responsible investing are often used interchangeably.
Here are the eco-investing sectors:
1. Eco Living
Companies in this sector provide goods and services that relate to healthy living. Some items in this sector include organic farming, and ecologically sound herbicides, pesticides and fertilizers. If you are interested in green farming and sustainability, this sector might be the perfect fit for your investing strategy.
2. Renewable energy
This is the best-known category thanks to ample media coverage. This sector includes a multitude of companies that produce wind turbines, solar panels, and hydroelectric turbines. Smaller companies down the process chain that provide parts and raw materials are also considered part of the sector.
3. Energy storage
Excess energy from solar panels has to be stored so it doesn’t go to waste. This also includes fuel cells in hybrid cars and other battery storage devices. Energy storage is expensive, but every day technological advances are rapidly bringing down the costs. The cost of storing excess energy is a main hurdle that can dissuade many homeowners from utilizing solar or wind energy.
Biofuels are produced from decomposing waste or other biological scrap materials. Bio-diesel as well as fuel from algae or corn are a couple of very common examples. These biofuels are easier on the environment and potentially much less expensive in the long run.
5. Efficient building systems
These type of companies manufacture green building materials such as insulation and energy-efficient glass. Recycling companies are also included. Many companies in this sector have been around for a long time and can be more stable than growth companies in the other sectors.
You can focus solely on a single sector or invest evenly across the board. There are many companies from which to choose. Focus on completely understanding one sector from top to bottom before moving on to another. Good opportunities can be found almost anywhere.
How to Invest
Several options exist for the green investor:
1. Individual stocks. Find, research, and invest in individual stocks within the broad category of green investing. To get started, use the search term “green stocks”.
2. Mutual funds. If you would rather leave the research to a professional stock picker, consider purchasing a mutual fund that focuses on investing in green companies. Mutual funds provide much diversification. Remember though that you’re only diversified within this specific niche and not across the entire economy.
3. Bonds. Green companies need to borrow money just like any other. The government sometimes offers bonds that support green initiatives as well. Green bond funds also exist. Bonds are a good option if you need stable income from your investments without the volatility of stocks.
When investing in green companies, beware of a couple of common mistakes. Many green companies depend almost entirely on government assistance. Keep a tab on politics and changes in green energy policy. For instance, tax breaks for consumers to purchase solar panels for their home can make a manufacturer very profitable. When those tax breaks expire, however, fewer households are willing to purchase expensive solar panels.
You should also be aware of companies that heavily emphasize their “green-ness” or social consciousness. While it might make for a good soundbite, the best companies focus on profits. Don’t be swayed by the great things a company is doing for the environment if they’re losing money each year. Keep in mind, before investing in any company, it’s most important to make informed investing decisions.