Green Investing - An Efficient Tool
to Make a Difference for the Global Environment

Green investing is also called environmental investing.

CONTENTS Overview Industrial Pollution & Dirtiest Industries Top Priority Areas     Renewable Energy         Solar         Wind         Geothermal         Biofuels         Hydro     Agriculture / Organic Foods     Water Technologies     Green Cars     Green Building     Energy Efficiency     Carbon Emissions Market     Reforestation     Recycling What is NOT Environmental Investing Types of Environmental Investments Conclusion

Any human activity, be it the manufacture of goods, growing cereals, planting trees, or just going for a drive in the countryside or having a meal in a restaurant, will have an impact on the nature, in some way or another.

Some activities will have a positive environmental effect while many others will be harmful with negative impacts on the nature.

The main aim of green investing is therefore to raise and channel the capital into the industries / companies which develop and introduce new “green” technology and demonstrate environmentally friendly behaviour in their day-to-day business practices.

From the point of view a serious green investor, it is important to show an interest in investment opportunities which aim to tackle the biggest environmental challenges of our times, and try to avoid the “greenwashing” schemes.

We have already discussed the wide-ranging effects of environmental pollution and global warming which are set in motion mostly by the industries dependent on fossil fuels, dangerous chemicals and artificial fertilizers.

Industrial Pollution and the Dirtiest Industries

One of the biggest culprits of recent environmental degradation is undoubtedly our use of fossil fuels as a primary source of energy.

It is difficult to imagine an activity that would not utilize fossil fuels in one way or another.

Not only are fossil fuels non-renewable resources, they are also very dirty ones.

For example, fossil fuel combustion is a source of atmospheric emissions of: sulfur dioxide, nitrogen oxides, carbon monoxide, as well as carbon dioxide and methane.

Oil pollution can seriously affect your health

Though effects of the exposure to the first three gases range from headaches and dizziness to toxicity of the central nervous system (these may be limited to specific geographical locations), it is the last two gases that we are most concerned with.

Carbon dioxide and methane are the most powerful greenhouse gases, i.e. the ones which contribute to global warming.

The global warming effects can be truly devastating, ranging from floods and hurricanes to droughts, to name just a few.

The fossil-fuel dependent energy sector is not the only source of greenhouse gas emissions.

Another large sector is of course agriculture whose main greenhouse gases include methane and nitrous oxide.

Among other activities, rice cultivation and fertilizer use are significant sources of agricultural greenhouse gas emissions which also contribute significantly to the global warming process.

Waste management and industrial processes (incl. manufacturing of building materials) are a couple of other, albeit smaller, sectors which nonetheless bear their own share of responsibility for producing some greenhouse gases.

This is a good framework of the areas which should be considered by green investors for moving their capital into.

This nicely leads us to an analysis of the industries that could become top priority targets for environmental investing.

Top Priority Areas for Green Investing

Green Investing – Renewable Energy

Undoubtedly, deployment of efficient renewable energy sources is the biggest priority for just about anyone who cares about the environment.

Solar, wind and geothermal types of energy are probably the greenest and cleanest sources available, while biofuels and hydro projects appear to be more controversial from the environmental point of view.

Solar

The solar sector stocks are very popular indeed, and no surprise.

Solar energy is the most abundant energy resource in the world.

There are currently two main types of solar technology on the market:

• Thermal solar technology (when solar energy is used to produce heat) can be used for water heating as well as cooling and ventilation systems. Thermal solar energy can also be used for generating electricity indirectly from heat.
• Photovoltaic solar technology utilises solar cells which capture solar light and convert it directly into electricity. Solar cells are built into solar panels which can be installed locally (e.g., on roof-tops) or remotely (as in large PV plants).
While most solar panels are silicon-based, a new photovoltaic technology – thin-film cells – is now also receiving a lot of attention.

Wind

Wind energy is used for generating electricity.

Just like with solar panels, users can install wind turbines locally for home or business consumption, or wind farms can be built in remote locations and connected to electrical grids for energy transmission.

It is quite a successful green industry.

In spite of that, it still faces some challenges.

For example, it is an intermittent source (i.e., not constantly available) and wind speeds may vary from time to time; suitable sites for wind farms may be located far from consumption points and may be costly to build; the local environment can be directly affected (birds may be killed by turbine blades).

Geothermal

Geothermal energy is generated by the heat located under the surface of the Earth and is used for heating buildings and producing electricity.

It is largely an untapped resource and is now drawing more attention from the investment community.

Some countries (e.g., Iceland) use this source extensively, while others are just starting to realize its potential and put more money into this sector.

Biofuels

Ethanol and biodiesel are currently the most common types of biofuel. Ethanol is produced from crops (e.g., corn and sugar cane) while biodiesel is derived from oil plants (e.g., palm oil).

There is no straightforward answer as to whether biofuels are good targets for green investment, and whether it is a truly green industry or not.

We are not completely sure whether production and use of biofuels do actually help reduce the negative impact on the environment caused by fossil fuels.

Also, many tropical rainforests around the world are destroyed to clear the land for biofuel plantations. Such deforestation causes the release of large amounts of greenhouse gases which contribute to global warming.

But in spite of this, there are some fascinating emerging biofuel technologies. One example is algae biofuel which promises to offer much higher productivity than crop-based biofuels. Another example is generation of biofuel from waste.

Hydroelectric Power

We know very well that the use of large dams for electricity generation can cause huge damage to the local environments where these dams are built.

Large-scale dams are not suitable targets for green investment; however, micro hydropower may well be worth a serious consideration.

Green Investing – Agriculture / Organic Foods

Organic farming requires a lot less energy than conventional farming, uses natural inputs and processes for growing crops, and avoids the use of artificial fertilizers and pesticides and genetically modified organisms.

Organic foods have dramatically risen in popularity over the last several years.

It is not surprising then that such high demand for organic foods would not only mean higher profits for green investors, but also outstanding benefits for the human health and for the wider environment.

As an example, distributors and retailers of organic foods will be among the obvious targets for environmental investing.

Green Investing – Water Technologies

Waste water treatment

Waste water (sewage water) contains vast amounts of energy that may potentially be recovered by wastewater treatment plants and re-used either by plants themselves or elsewhere.

Many wastewater plants already recover a certain percentage of energy from sewage; and this technology may yet become even more efficient as more research is conducted into this field.

This is certainly an area of interest to green investors as waste water may become a significant source of renewable energy in the future.

Another developing technology is recycling waste water back into drinking water.

While this may not immediately sound very hygienic, we know of some municipalities in the US which are already making investments into this sector.

Sustainable water supplies

As the water shortages around the world become all too apparent, there is no doubt that this area will be a very important one in the 21 st century.

Agriculture, industry and residences consume huge amounts of water, and securing sustainable water supplies has already become a big issue both in the US and many other countries.

Investments in water desalination and purification technologies as well as water infrastructure companies will be among those in the spotlight for green investors.

Green Investing – Green Cars

Many people cannot imagine their lives without cars. And yet cars are, of course, big air polluters due to their use of oil as the main type of fuel.

You may have heard about the recent surge in popularity of so-called hybrid cars which continue to use traditional internal combustion engines (i.e. gasoline-powered) and electric motors at the same time.

One doubt about this area is that most of research into green cars is conducted by large car companies which manufacture gas guzzlers at the same time. They are not purely green car companies. So if you want to invest in large auto makers, you will also be investing in other segments of their businesses.

Still, this represents an exciting green investment opportunity for investors to keep an eye on.

Green Investing – Green Building

Green building is a concept of maximising the efficiency in the use of energy and raw materials during the construction process.

Construction and operation of buildings are among the largest sources of greenhouse gas emissions.

Interesting targets for environmental investing here would be producers of green building materials, green construction & rent companies, waste treatment companies.

Green Investing – Energy Efficiency

As for the energy efficiency industry, it offers many familiar products that we use every day, like energy-saving light bulbs, washing machines, cookers etc. which are always in demand.

It’s well worth looking around the market to see if there are any green companies which make best use of energy-efficiency technologies.

Green Investing – Carbon Emissions Market

The concept of a carbon emissions market started drawing attention only recently, and you may or may not have heard about it before. But by the looks of it, it promises to be big and presents a novel way for green investors to use their money.

The main idea here is to introduce a market-based mechanism for the regulation of carbon emissions produced by companies throughout the world.

It is also called a cap-and-trade system which allows companies to buy and sell carbons credits through trading platforms.

For example, company A is allowed to produce a certain amount of carbon emissions a year (a cap component of the system).

If this company produces less emissions than it’s been originally allowed, it can then sell the excess allowance on the market for a profit to company B that happened to produce more emissions than originally allowed. This is a trade component of the system.

In other words, good green investment targets are clean companies which will be managing their businesses well and selling their carbon credits at a profit.

Green Investing – Reforestation

This part of green investing has a very big potential indeed.

Reforestation is the re-introduction of trees in the areas that were previously deforested.

Reforestation projects are eligible for carbon credits under the Kyoto Protocol. Therefore, they are indirect participants in the carbon emissions market.

For example, Panama rainforest is just one place where some reforestation projects are now taking placing.

If you do decide to try your luck with reforestation projects, make sure you invest your money in multi-cultural plantations, and not in mono-cultural ones.

It is a well-known fact that mono-cultural plantations (e.g., teak plantations) are seriously harmful to the environment; whereas multi-cultural ones (i.e., mixtures of many species of trees) aim to benefit both investors and the environment in many different ways.

Of course, as this industry is gaining traction, we will see more projects and locations coming to the fore.

Green Investing – Recyclyng

Recylcing is another interesting green industry.

It has a potential to be one of the biggest current opportunities for green investors because at this stage it appears to be more mature than other green sectors. You will be able to find a variety of recycling companies listed on registered as well as smaller stock exchanges.

Virtually any human activity (industrial, commercial, municipal & residential) generates waste - mostly solid waste or waste water. (See the discussion on waste water opportunities above.)

So there is a clear need for investments in companies which can recycle different types of waste - such as metals, paper & wood, glass, plastics, waste water - for the manufacture of new products.

Recycling industry can make a real contribution towards saving vast areas of tropical rainforests which are currently being destroyed to be used in paper & wood products.

What is not Environmental Investing?

Let's diverge a little bit from specific areas of green investing and talk about green credentials of other industries.

Virtually every industry on the market is now trying to present itself as environmentally friendly and eager to help bring major pollution problems under control.

Although we can justify many of them as genuine attempts at introducing greener technology and more efficient business practices, the "environmental" claims of some industries are just plain untrue (if not bold deceptions).

This process of trying to deceive the public with green claims is called greenwashing.

My "favourite" example here is that of nuclear energy. This industry claims to have the capacity to reduce global carbon emissions and thus help deal with the global warming issues.

To a certain extent, this may be true in respect of carbon emissions.

But it is impossible to understand how it can be called "green" when nuclear plants produce highly radioactive waste (scientists still don't know how to handle and store it properly) that takes thousands of years to degrade.

Should I even mention the highly hazardous operations of nuclear facilities which present serious danger to the areas surrounding them (remember Chernobyl?) ?

Well, nuclear energy is definitely not a part of green investing.

We just need to wait and see if any other sector will surpass the nuclear lobby in their environmental claims.

Here is my guess ...

What about clean coal, everyone?

Types of Green Investments

Let's imagine we have persuaded you to go green with your investments.

So what types of investments are available out there?

There are several established financial instruments which you can use to make your investments, ex., green stocks, green bonds, green funds as well as some other ones such as green savings accounts, green money market accounts and green certificates of deposit.

Please visit the following pages to learn more about these instruments:

• types of environmental investments
• what is a green fund
• list of green funds

Conclusion - Why Bother with It?

Undoubtedly, green investing is a real tool in bringing about change to the modern practices which seriously affect the environment.

By putting money in green industries instead of dirty ones, investors will be “voting with their wallets” and thus stimulating the growth and development of truly responsible companies.

Environmental investing is expected to be a source of “patient money” with a focus on medium- to long-term returns – this is the way forward if we want our investments to achieve the real results.

Last update: November 2008