Green investment

Figure 1. A wind farm produces electricity at a low operating cost and with zero emissions.

Green investing or eco-investing is the practice of only investing in firms that use environmentally conscious and friendly business practices. These firms focus on environmental conservation, low to no carbon projects, the development of renewable energy alternatives and clean air/water projects with very little ecological impact.

These investments tend to carry more risk than others because the many firms involved in these activities have low earnings which in turn, translates to small returns for investors. Smaller returns and a certain level of risk make these investments less appealing to investors.

An example of green investing is an investor who buys shares in a firm that builds no-carbon electrical generation methods such as nuclear power stations or wind farms. Another would be an investor who buys assets from a green fund that only invests in environmentally friendly firms.

Investment in firms that focus on the R&D of renewable systems is also important because alternative and renewable generation methods become cheaper from advancements in technology. As the price of alternative and renewable projects fall, their investment and use becomes more attractive and their share of the global energy mix increases. In the year 2014, renewable energy technologies accounted for 45% of new additions to the energy mix.

The increasing demand for energy world wide means that renewables can play a larger part in the energy mix. Advancements in renewable technology can help underdeveloped countries leapfrog and avoid the cheaper and less environmental energy options. Investment in the research and production of these sources is vital to ensure their implementation.

Some governments offer incentives to encourage investors to put their money in green investments. One example of an incentive is the removal of the capital gains tax on the returns from green investments. The removal of this tax increases the amount that an investor can make from a green investment thus a tax-free green investment will be more appealing to investors.