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Environmental investing a good idea?

Investment | Specialist Helpful? 8

Asked by greenbee, submitted 15 October 2009.

Open Quote Is it a good idea to put my money into environmental investment?End Quote

Answered by Justin on 26 October 2009

Environmental investing covers areas such as clean energy, water/waste management, green transport and sustainable living (e.g. organic agriculture, forestry & ethical science/healthcare).

If the global shift towards these practices continues (which seems probable given climate change concerns are unlikely to go away and population growth continues) then environmental investing looks a pretty reasonable bet over the next 10-20 years.

However, you shouldn't view it as a one-way bet and there's potential pitfalls to consider.

Clean (i.e. alternative) energy investment performance is heavily influenced by the oil price in the shorter term - if the oil price is high then clean energy is attractive and vice versa if it's low. Until oil supply starts to dry up, or we're all compelled to use significantly more clean energy, it's hard to see the current situation changing.

Also bear in mind that companies focussing on environmental issues tend to be relatively small and often based overseas. This can make them harder to research and potentially more speculative, especially if they're trying to develop new technologies. Always try to thoroughly understand a company and the possible risks before parting with your cash.

If this sounds like too much hassle or risk, you could consider a fund that invests in a range of environmental areas and companies. Examples include the Jupiter Green and Impax Environmental Markets investment trusts.

Investing in forestry usually requires larger sums of money and is a long term investment as you have to wait for trees to mature before they can be converted into timber for sale. Returns have been good in recent years, but will obviously depend on future timber prices moving forwards.

Finally, don't mistake 'ethical' funds as necessarily being environmental investments. While some ethical funds do invest in environmental areas, they're primarily conventional investment funds that simply avoid unethical companies – a different ethos altogether.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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