Green investments are essentially those investments made in companies that support environmentally friendly activities. They are in favor of eco-friendly practices that have a positive and long-lasting impact on nature. The projects taken up by these companies contribute to the conservation and protection of natural resources in water, land, and air. They work towards reducing air and noise pollution and the production of sustainable and inexhaustible energy resources that will last mankind a long time without harming any element of nature. If you draw out the list of the top grossing apps, you will find that green finance is closely associated with the Socially Responsible Investing (SRI) criteria.
What are the different types of green investing?
There are mainly three types of green investing –
- Green Equities – This is the first and simplest type that involves investing in eco-friendly companies. For example, buying stocks of a company like Tesla that is committed to environmental concerns is part of green equity.
- Green Bonds – Also known as climate bonds, these are in fact fixed-income securities like loans. They are used to finance any project that will positively affect the environment and will work towards conserving and preserving natural habitats. These bonds have tax incentives, which is what draws more people towards opting for this type of investment.
- Green Funds – Investing in mutual funds or shares of a company that gives wider exposure to this natural cause is known as green funds. They give investors a ready-made basket so that you can invest over a wide range of projects instead of focusing on a single stock or share. The Social Choice Equity Fund, Portfolio 21 Global Equity Fund Class R, etc. are examples of green funding.
What are the potential advantages and drawbacks of green financing?
Although green investment may sound like the perfect way to put in your money for a good cause and make it grow, we need to consider the fact that all investments come with their share of risk. As a result, there is a downside to them all. Let us now weigh the pros and cons of green investing to help you get a better idea of this novel concept.
- Renewable energy resources and eco-friendly products are here to stay. With the world now realizing the importance of saving nature, one can be sure that the companies working towards these agendas are going to be in business for quite a long time. This means that your green investments are likely to provide long-term growth opportunities.
- Your money is going to be used for a greater cause. Along with getting returns for your investments, you will also be living with a good feeling about having contributed to the planet.
- Eco-friendly companies need money to keep things going and bringing about environmental change isn’t an overnight process. Green investments provide support for companies that are committed to making the world a better place for future generations and with the money pool, this goal can be achieved at a faster pace.
- Green investment is still a fairly new concept and you might have some trouble finding the right kind of companies. A lot more research than usual is required making the task challenging.
- Although the pros mentioned that there is room for long-term growth, short-term losses need to be taken into consideration. All eco-friendly companies work on a long-term effect basis and currently, they might or might not be as successful as other companies. If you are looking for short-term benefits, then this isn’t for you.
- It is good to know that your investments are helping a greater cause, but it is also mandatory to keep in mind that company policies can change. Any new members, change in the Board of Directors or other authority figures may cause the company to let go of its eco-friendly policies and take the normal route to success.
Green finances are a fairly new concept, but a very promising one, feel experts. However, you must make sure to research well and understand your risks before putting your money in it. Like any other form of investment, green finances too come with their unique suitability factors.