Green investing can be defined as an investment strategy focused on companies that are committed to the conservation of natural resources, which can include discovering and developing alternative energy sources, clean air and water projects, and other business practices involved in preserving or protecting the environment. The more revenue a company produces from green activity the purer the green investment.
Green investing was a hot issue when President Obama first took office in 2008. The President was committed to helping companies develop alternative energy and cleaning up the environment. Some pooled investments, such as mutual funds and exchange traded funds, were created to focus on green companies. Investing in green companies is a form of socially conscious investing, which has been around for a while now. However, green investing is generally riskier than other types of social investing.
Green companies tend to be younger and in the development stage when revenues are typically thin. Green companies are also generally in the energy sector, which is more volatile due to fluctuating energy prices.
Investors looking to support the environment without some of the volatility have turned to green bonds as a more stable alternative. Green bonds provide funding for projects that have a positive impact on the environment. Projects like retrofitting old buildings, managing watersheds, or developing sources of clean energy have all been financed through green bonds. Green bonds carry the same risks as regular bonds and many are rated by the same organizations that rate regular bonds. As baby boomers approach retirement, green bonds offer a way to meet their income needs and address their environmental concerns.
Green bonds have been around since 2007 and are on target to raise $40 billion in 2014, according to AsYouSow.org. However, green bonds comprise a very small section of the bond market.
Defining what a green bond actually is remains a challenge. Investors interested in green bonds will need to study the underlying project being financed to be sure they are supporting green projects they care about.