In the current economic climate, many investors are sceptical when it comes to investments in so-called green stocks. Shouldn’t we rather be buying blue chips instead of green chips? What are green stocks, anyway?
Green stocks can broadly be defined as stocks of companies, that are involved in improving our environment. There is no universally accepted definition of “green”. It might be easier to give examples of what can be seen as green investments:
- companies in alternative energy branch (biofuels, wind power, solar power)
- companies that aim in the reduction of pollution
- public transport
Sustainability is another vague concept that is closely related to the greenness. Most companies nowadays accept sustainability as an important topic in the annual reports. In addition, more and more companies publish separete sustainability reports.
A good working defintion from sustainability originates from Brundtland Commissions green paper (1989), which defined sustainability as “[to meeting] the needs of the present without compromising the ability of future generations to meet their own needs.”
In business, this is usually seen as consisting of three pillars:
- ecological sustainability
- social sustainability
- economical sustainability
According to this definition, sustainable stocks are stocks of profitable companies that take ecological and social sustainability into account when making business decisions. In this web site, sustainability and green are mostly used interchangeably: being ecological is not enough for a company in order to be seen as a green company.
Speculative stocks or stocks to be held?
Green stocks can be seen both as speculative stocks expected to make big wins in a short time or as long time investments intended to bring p
rofit for decades.
It is very possible that the next stock bubble will be based on the green stocks. We can still remember the huge profits and losses of the dotcom bubble – for some investors the memory can serve as a warning, the other investors are reminded of the huge wins that were made in a short period of time.
On the other hand, it can be argued that the megatrends of growing population and the rising price of traditional energies are a strong basis for including green stocks in the portfolio even if one buys stocks to be held, not to be sold.
Thus it can be argued that the green stocks should be included in every stock portfolio.