Everything You Need to Know About Environmentally-Friendly Investing

Installing solar power, using earth-friendly appliances and light bulbs, and buying a hybrid or electric car is not enough to call yourself "green" these days. Your investment dollars also impact the environment. Your investment, no matter how small, can lead to big changes in environmental policy and reduce your carbon footprint by taking money out of the pockets of companies with poor environmental practices.

Environmentally-friendly investing means putting your investment dollars into the hands of stocks, mutual funds, and companies with Earth-friendly business practices. Investing in environmentally-friendly businesses puts your money where your mouth is, matching your environmentalist ideals with your investing future.

Making environmentally-friendly investments can take lots of different forms. Since you control your investments, you can use things like your 401(k) plan, your savings account, or your retirement savings fund on top of traditional investment funds to support "green" companies as well as environmentally-friendly and socially responsible mutual funds and other types of stocks.

When people invest in companies that go out of their way to reduce pollution, reduce their impact on the air and water, work to halt global warming, and support the creation and maintenace of parks, wilderness, and wildlife, you take money away from irresponsible companies and mutual funds and put it into the hands of socially responsible entities. But socially-responsible investing is more than just putting money in the right kinds of funds--taking actions as a shareholder of a company to convince that company to alter their harmful policies is another way to invest with a sense of social responsibility. Shareholders can have a big impact on a company's policies, putting pressure on them to develop plans that lead to a safer, healthier, and cleaner Earth.

Some examples of how shareholder pressure has affected social change: the potential for loss of investment funds convinced the Ford Motor Company to develop more fuel-efficient cars, forced Home Depot to switch to the sale of sustainably-grown forest products, and influenced Coca-Cola's decision to conserve water in their bottling and research practices.

Stocks, mutual funds, and corporations answer to their investors. We know that investor pressure is one of the greatest forces in business. In 2007, after two dozen major investors threatened to withdraw their $900 billion in holdings if ExxonMobil board member Michael Boskin wasn't removed (due to his lack of concern for the company's environmental impact), the story made international headlines. Boskin was not removed from the board, but ExxonMobil began investing hundreds of millions of dollars a year on biofuels, specifically those made from algae, a fuel source that was getting little attention prior to ExxonMobil's financial commitment.

But stocks and mutual funds are far from your only choice as an environmentally-responsible investor. There are a handful of environmentally-friendly ETFs ("exchange-traded funds") you can invest in. As of this writing, there are six alternative energy ETFs to choose from, each with their own pros and cons. All six "green ETFs" have unique focuses, market presence, and corporate expenses. Be sure to investigate these ETFs before you invest to ensure that these funds match up with your own ideals. ETFs like PowerShares WilderHill Clean Energy Portfolio, Claymore/LGA Green, and FirstTrust NASDAQ Clean Edge give investors the opportunity to invest in a "basket" of stocks joined by a common theme, in this case clean energy.

If you've made the decision to invest in environmentally-friendly companies and funds, you've already made it through the hardest part of the process. Finding companies and funds to invest in is as easy as asking a few simple questions about an investment: What does this company do to reduce pollution and global warming? Are they concerned with water conservation? Does this company use child labor? Do they do any animal testing?

If your investment passes this simple test, consider a few more factors. Could you invest your money in a company that manufactures green energy or green equipment? Look for companies that build solar panels, geothermal tools, or ones that use these devices in their day to day operations. If you can find a company that meets all these requirements, you can be safe in the knowledge that your investment is truly environmentally friendly and socially responsible.

Environmentally-friendly investing is not just a good idea for the future of the planet, it just plain makes sense for the future of your investment capital. Energy is changing, moving away from a dependence on oil and coal and quickly trending toward alternative energy sources. The popularity of hybrid and electric cars is proof that people are moving away from their dependence on fossil fuels. Alternative energy is a growing field, and investments in growing industries make financial sense.

The best example of how "green investing" can pay off is the investment portfolio of former Vice President Al Gore. Mr. Gore's investment in Silver Springs (a company that creates highly-efficient electric grid components) has returned his company's initial $75 million investment many times over. Al Gore's investment return is not typical for green investing, but it does teach us a few things about how to invest responsible. Don't expect an immediate return. Invest in a company you believe in. Invest in a technology that looks toward the future without going so far off the grid that it can't attract attention of contemporary research and manufacturers.

With the price of gas on a steady upward trend, it makes sense to invest in companies that support or create green energy and hybrid vehicles. Investment in electric energy sources that use so called "clean coal," while not necessarily the greenest choice you can make, is a far wiser financial investment than electric companies that mostly use older technology for creating electricity.

The best financial decision you can make for your investments is to diversify between many different "green" companies, especially if they don't overlap. Investing in a company that creates hybrid cars or hybrid engines as well as an ETF that sells "green energy" is a wise decision, as those two investments do not conflict with one another.

Remember that investments in green technology should be thought of as "long-term" investments. Like any emerging field, you may not see a return on your environmentally-friendly investment in the short-term. This is where your commitment to the Earth and your commitment to investing wisely come together. We can't save the planet overnight, and you can't expect a socially-conscious investment plan to flourish in just a few months.

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