Green investments are, essentially, investment activities which focus on companies and projects committed to one of the following missions.
- The conservation of natural resources
- The production and discovery of alternative energy sources
- The implementation of clean air and water projects
- Any other environmentally conscious business practice
The term, though ubiquitous in nature, applies to a very specific type of investment. Colloquially, a green or environmental investment is one in which the activities, in a popular context, could be considered good for the environment—either directly or indirectly. A green portfolio can include anything from securities and mutual funds to ETFs and bonds.
Environmental investments can be complicated in nature. Individuals beliefs on what constitutes “green investments” can vary, making qualifying investments relatively vague. To firm up the definition, investors have introduced the idea of a “pure-play” green investment; that is, an investment in which the company or project derives all or most of its revenues and profits from green activities. Some believe that investing in companies with good business practices, especially those who responsibly use natural resources and manage waste, constitutes environmental investment. Others have stricter definitions.
So, how is this different from an SRI? SRIs, also known as Socially Responsible Investments, are those considered the be socially responsible because of the nature of the business the company conducts. Common themes for SRIs include avoiding investment in companies that produce or sell addictive substances, instead seeking out companies engaged in social justice, environmental sustainability, and alternative energy or clean technology efforts. An environmental investment fits under the umbrella of an SRI, but the two should not be conflated.
Though you may consider your upcoming remodel or renovation to be an environmental investment, your lender may not. Therefore, it is essential to research the different qualifying characteristics of environmental investments for individual lenders.