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Green investments: what are they?


1st Jan 2015 Managing your Money

Green investments: what are they?

Green investments, as the name suggests, are shares in companies that are involved in environmentally focused activities or the manufacturing of green products. Recent years have witnessed an unprecedented push for a more environmentally friendly world, and this has led to the creation of organisations whose sole purpose is to conserve natural resources. These companies need funds, and that is where green investments come in.

Pure play green investments

Pure play green investments are shares in companies whose activities focus primarily on environmental concerns, whatever they may be. However, not all companies are 100% focused on green activities. An organisation that specialises in a non-green area may be in the process of diversifying its products and services in order to embrace the demand for more environmentally friendly products, or simply to pay more attention to issues such as global warming. As can be seen below, however, the lines are somewhat blurred when it comes to whether or not an investment can actually be classed as green.

When is it green and when is it not?

There is a great deal of debate regarding what exactly constitutes a green investment. In contrast with pure green investments, there are certain companies that, while focusing the majority of their resources on a certain industry, may be increasing their emphasis on environmental activities. Anyone wishing to make a green investment should conduct thorough research so as to ensure that the company they are looking at matches up with what they view as green. This can be done by referring to a green fund's prospectus, or a stock's annual filings.

An example of a green investment

Wind farms are the future of clean renewable energy, and shares in wind farm production companies are among the most popular green investments. The Trillion Fund is a Financial Conduct Authority-regulated crowdfunding site, and is currently trying to encourage investment in the E5 project, which needs at least £1.25 million to finance around ten wind turbines on farms up and down the UK. 500 average sized homes can be powered just from these ten turbines. And the return for investors? 7% a year for a three-year period.

The risks

The huge push to conduct green activities and produce environmentally friendly products is a relatively new thing, and so many green companies are at a very early stage of development. This poses certain risks when it comes to purchasing shares in such companies. While the value of these organisations would soar were they to achieve success, there is no guarantee that this will happen. So, green investments will often mean parting with a fair bit of money to invest in a company which is only projected to make a great deal of profit.

The production of wind farms, the reduction of carbon emissions, and recycling; these are just a few of the ways in which both people and companies can help conserve our natural resources and slow down global warming. Green investments are a great option for those keen to contribute to a greener, cleaner future and perhaps make some money in the process. Shares in green companies are the new trend, and look set to continue their meteoric rise in popularity.