What are Different Types of Environmental Investments?

There are socially responsible ways of investing in the stock market. Investors can be defensive by avoiding investments that are harmful to people, the environment or both, or they can behave proactively by selecting stocks or bonds that are environmentally friendly — or "green" — investments. There are entire investment vehicles, such as mutual funds, that can be comprised solely of environmental investments. Investors also can select environmental securities such as stocks and bonds on an individual basis.

Green investing is one way for investors to support only those businesses that are environmentally friendly. This entails seeking out individual companies whose stocks trade in the public markets and that are devoted to reducing pollutants or emissions in the air, water or land. The goal could be to promote the implementation of socially responsible investing while also selecting environmental investments that pose the greatest potential for attractive returns.

Environmental investments might include solar stocks, which represent businesses that depend on energy from the sun, not natural gas, to generate power via solar panels installed on infrastructure. Wind power investments are another type of renewable energy opportunity. These companies produce power from wind turbines, typically located on a wind farm, so they leave no trace of pollutants in the air. The weather can be unpredictable, so a wind power company might also rely on some natural gas-powered energy, but these still are considered green investments.

In addition to selecting individual stocks, an investor can gain exposure to environmentally friendly investments via a mutual fund. This is an investment vehicle comprised of pooled assets from multiple investors, which gives the portfolio manager buying power when making his or her stock selections. In addition to the aforementioned investment types, a fund devoted to alternative investing might pursue opportunities in companies such as those that recycle waste paper in an attempt to preserve forests and endangered species.

Returns or profits associated with environmental investments can be unpredictable at best. This is because performance is often determined by the state of the energy industry. Environmental investments tend to perform their best when oil and gas prices are climbing to unrealistic levels or after some sort of catastrophe involving fossil fuels, such as a harmful oil spill. When it becomes cost-prohibitive to purchase traditional energy, the case for alternative energy gains the most traction, which in turn benefits the returns of environmental investments.