Investing in Green Technologies

How to Make Money and Make the World Better

Investing in Green Technologies
April 22, 2014

You want to be a responsible citizen of the world and do the right thing with your investment dollars. At the same time, you are not interested in risking your retirement funds on dicey and unproven technologies. How can you balance your good intentions with good returns? Consider these factors and topics as you look for suitable green investments.

  • What Does Green Mean? – The term "green company" or "green investing" means different things to different people, and it means different things to different ranking systems, agencies, and sites with green investment tips.

    For example, is nuclear power green? It's exceptionally green in contrast to greenhouse gases for power generation, but it carries a different set of environmental risks. Only you can define what is "green" enough for you.

  • Company Philosophy – Any green company will advertise its efforts. Most will have a Corporate Social Responsibility report somewhere in the website. It may be listed under Company Culture, Corporate Values, Community Responsibility, or a similar heading. Their green efforts should be neatly summarized there.

    Other online resources such as Corporateregister.com (for archived corporate responsibility reports), Corporate Responsibility magazine, rankings like Newsweek's Green Rankings, and watchdog sites like greenwashingindex.com can all give you insight into a company's claims and reliability.

    For most companies, a simple Google search of the company name with terms like "sustainability" or "greenwashing" will tell you most of what you need to know.

  • Company Composition – Do you prefer green "pure plays" (companies invested in a narrow line of business), such as a solar cell startup, or are you comfortable with a large company like General Electric, who has a large presence in wind turbines and other clean energy technologies along with more traditional businesses? In considering such a conglomerate you must assess if their green initiatives are weighty enough to counteract non-green business lines such as traditional power plant technology.

    From an investment standpoint, the solar cell company will have more risk and potential reward, while GE will provide more predictable returns.

  • Company Background – Aside from checking typical indicators like P/E (price/earnings) ratios and debt, dig into the prospectus and the specifics, especially companies in cutting-edge technologies where risk and potential reward are both high.

    What are the industry reviews of their technology? Are they being propped up by government funds or temporary tax breaks to the company or its customers? How stable is their cash flow and backing, especially if funded by venture capital? Do they have strategic partnerships for the marketplace? Is there infrastructure ready to accept their technology, or are they completely disruptive? How do they stack up with competitors? Are there regulatory concerns?

    Answering these questions may keep you from investing in what sounds like excellent green technology with a company that is unlikely to put it into practice and make money.

  • Company Performance – How has the stock performed over the past year, or the past five years? Reviewing past performance doesn't necessarily guarantee results but it can highlight red flags or cyclical anomalies.

  • Sector Performance – How are other companies in this sector performing? What are their outlooks, positive developments, and challenges? You might see worrisome trends in the broader sector (such as expiring solar tax credits in many states), or locate a more attractive investment.

If you want to invest more broadly, consider mutual funds and exchange-transfer funds (ETFs) that specialize in green companies. Fund managers do the vetting for you, and the funds are often grouped by industry or activity such as solar energy, wind energy, water resources, and environmental services. Many of these are involved in alternative energy production, so check the prospectus carefully for risk factors.

Green investing can come with higher stock volatility and higher risk, but it doesn't have to. Make sure you are comfortable with your definition of green, do your research, and match your level and type of investment to your risk tolerance and portfolio needs. If you do that well, both your bank account and the Earth will thank you.

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