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The idea of green or eco-investment is extremely popular at present. Like all things ‘green’ it confers the idea that by making an investment in this way you’re actively working to protect the future of the environment and are interested in sustainability. Even the UK government is on the act with the announcement of the UK Green Investment Bank (GIB) to be opened in autumn 2012 and a further £100 million invested into funding for specific firms providing ecological investment opportunities designed to boost the green economy. However, how does one determine what is classed as ‘green’ and where do you begin when wanting to make green investments of your own?
What are green investments?
In the most basic terms, a green investment is any practice involving the investment of funds into companies which support or are responsible for the production or development of environmentally friendly products or practices. This can include anything from investing in an organic furnishings producer to investing in specifically labelled green products, such as bamboo. Companies who describe themselves as offering ecological investment opportunities often encourage the development of new technologies and methods which are designed to find more sustainable energy sources, rather than relying on carbon and fossil fuels too.
The development of the GIB shows that green is certainly the ‘in’ thing to be doing and the government investment suggests that the trend will further turn towards ecological means of speculating and funding in the near future, for the UK at least. The GIB will be the world’s first investment bank solely designed to ‘greening’ the economy with the hope that UK based businesses can build upon and develop in this sector, therefore providing even more investment opportunities. There is of course hope the GIB may also stimulate general economic growth and its CEO Shaun Kingsbury has been selected within the past few weeks to ensure all activities are kept on track and to deadline.
What constitutes a green investment?
The main sectors in which ecological investments are currently made are in sustainable farming, renewable energy sources and a small number of related areas. There is hope that by 2030 renewable energy sources could supply between 30 and 45% of all power in the UK and so as this market share is growing it seems a perfect area for investment.
Geothermal energy is potentially a huge area for investing. The geothermal potential of countries such as Iceland and New Zealand has already been investigated in depth but there is further suggestion that tapping into heat from the planet’s core is something that could be possibly generated anywhere as new technologies develop.
Solar energy is probably the most well-known and currently invested in renewable energy source. It’s considered the most abundant source available although the challenge with this source is in developing solar panels which are capable of capturing the potential energy efficiently and affordably without subsidies. Although there are claims that recent drops in the cost of solar panels along with their increased efficiency has already made them competitive with fossil fuels in the sunniest countries, this is sill some way from being the case in areas like northern Europe. On the other hand, government subsidies via guaranteed feed-in tariffs have been designed to make investing in solar a financially attractive investment and can offer a stable and low-risk green investment in the UK and other parts of the EU as a result.
A contentious issue for those living in agricultural areas, wind power and its related turbines is currently the fastest growing renewable, with a 25% growth being recorded per annum. This exponential growth makes it an interesting investment option. As with solar, investments in wind power are also supported by government guaranteed feed-in tariffs in the UK and EU increasing the attractiveness and dependability of this kind of investment. One note of warning is that until a renewable energy installation is connected to the grid and the feed-in tariff agreement is signed it is vulnerable to a change in the FiT, which both the UK government and those around the EU are prone to cut in stages. So make sure you educate yourself as to any upcoming review of the FiT which may come into place before you planned investment is signed, sealed and delivered. If looking at an investment in renewable energy abroad also do some research into the history of the local government’s stability in this regard.
Other green areas worth considering for investment include fuel cells, power storage and waste management. Each of these areas has seen significant growth as ‘greening’ has become more central to many government agendas. Hydrogen powered fuel cells are becoming more common, already in use by the Royal Mail for their postal vans in areas of the UK. Similarly, waste management is becoming a more significant issue as statistics report the average EU citizen disposes nearly 550 kg of waste every year. This is an area where there is huge scope for sustainable alternatives and safer, greener means of disposal. Finally, power storage has become an issue as we try to harness the renewable energy sources available to us. Further development in this field is being deemed necessary to find sustainable and high output ways of storing and harnessing renewable energy sources. This area could be a savvy investment as there is so much scope for research and development.
How to make your investment
Making green investments can follow similar methods to those you would use when making any other type of investment. If you’re committed to sustainability there are even options which allow you to make investments directly online, avoiding the further ecological impact of paperwork and travelling to and from your chosen investment broker or company. Cutting out the middleman is an extremely ecological option.
There are a range of popular investment methods if you’re interested in going green, which include:
- Green & Ethical Funds – there are over 100 ethical-specific mutual funds currently on the UK market with an estimated £11 billion currently under their management.
- Green Exchange-Traded Funds (ETFs) – designed for small investors looking to invest broadly in the green technology sector. ETFs are designed to mimic the performance of a specific market or index but unlike traditional tracker funds they are traded like individual stocks – making buying and selling much simpler.
- Ethical Finance – there are a number of options for those interested in investing their money in ethical financial products, from pension funds to savings accounts. However, whether a particular bank or fund is an ethical investor is largely subjective, depending on your view of what is classed as ‘ethical’. Be sure to make your own mind up as to whether the institution you are entrusting your money to puts it to good use and invests in worthwhile causes.
- Green Indexes – which are designed to track national or international green stocks
For tax efficient means of ecological investing consider either Green Venture Capital Trusts or Green Individual Savings Accounts.
Watch out for the green wash
The term ‘green washing’ has become synonymous with the world’s growing interest in sustainability and ecological issues. It’s basically a term for PR which falsely advertises a company as offering ecologically sound practices when in fact they’re doing the opposite. Green washing claims can be found in advertising, press releases and it is can be difficult to ascertain whether a company is being honest about their ecological credentials to benefit their overall company reputation.
Many cases of green washing have been reported to the Advertising Standards Authority with companies including Eurostar, British Gas and Shell Oil amongst those penalised for overstating the green ethics of their firm. When looking for an ecological investment opportunity you do need to commit time to research and fully understanding the morals and ethics of the company or product you choose to invest in.
The opportunity to capitalise upon products and services that not only benefit us but also the environment is extremely attractive. Options for the ecologically conscious investor are diverse and plentiful and will only become more so in the future, as global businesses become increasingly eco-conscious. It seems green investment is here to stay. It’s no surprise then that one of the most fashionable investment trends at present is definitely green.
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