As we all become more environmentally responsible and more focus is placed on climate change through the government and media, then more "green" investment ideas and products come on the market. They allow investors to make decisions not based solely on financial consideration but also take into account the ethical implications that come with their chosen investment.
What is green property investment?
Green property investment is a term that covers any property investment that is environmentally friendly or that takes into account its affects on the environment.
Types of green property investment
There have been an increasing number of private funds that are incorporating green buildings and energy efficient buildings, plus other principles of sustainability into their property selections and portfolios. Other types of environmentally friendly property investment that have increased in popularity include directly investing in properties that are eco friendly and investing in timberland.
Direct investment into green properties can include new build properties that are built under specific building assessment guidelines or renovating older properties to conform to guidelines. Guidelines such as Building Research Establishment Environmental Assessment Method (BREEAM) in the UK, Green star in Australia and Leadership in Energy and Environmental Design (LEED) in the US, take into account energy, water, ecology and land use, pollution, materials and transport during the development stage and use of the property.
Equipping existing and new properties with photovoltaic solar panels for the generation of electricity is also rapidly coming to the forefront of green investment as major governments around the world have started to offer incentive schemes such as the "feed in tariff" in the UK.
Why green investment?
Becoming "green" has become more mainstream due to political movements and government initiatives. Such as the United Nations Framework Convention on Climate Change (UNFCCC) that announced in December 2009 that an aggregate emission reduction by industrialised countries would be required by 2020 in order to stave off the worst effects of climate change, with global emissions falling at least 50% by 2050. Some green investments could help to contribute to these international targets.
A green property investment in the traditional sense may not make more profit than a non-green investment at present but it is very likely that the government may penalise investors through taxes or legislation in the future, for investing in or owning a property that is not considered to be within the guidelines.
Environmentally responsible attitudes have been prevalent among property developers for around a decade; many investors realise the importance of environmental responsibility and the possible future costs that may be imposed.
Benefits to green investment
Timber investment in particular, can benefit the environment by removing carbon dioxide from the atmosphere through what is known as carbon sequestration. Timber plantations can improve the biodiversity of the area by providing shelter, food and a home to local animals, as well as providing employment for the community in the area adding a socially responsible stance.
The benefits to these investment options are clear; there are the obvious benefits to the environment through reducing carbon emissions; there is also the feel good factor that this type of investment brings, knowing that you are not only benefiting financially but also being eco friendly in the process. With suggestions of government taxation on property owners who are not acting to help the environment, it may be cost effective in the long run.
Financial returns and risk levels need not be negatively affected when taking green issues into consideration during investment; growing academic research has suggested that Socially Responsible Investing (SRI) and Corporate Social Responsibility (CSR) programs do not result in poor financial performance when compared to conventional investment and business practices.
Some governments have put in place tax incentives for investment into rain forest land; aimed at encouraging green behaviour and can also be profitable to investors.
The down side
It is important not to focus solely on green investments, but to consider them as part of a diversified portfolio. The long term financial effects have not been realised due to the recent nature of green investments.
There is an associated premium with green investment due to the concept being less established and less mainstream, which brings the cost up.
Undoubtedly green investment is going to become a fundamental part of property investment, as the world becomes more aware of the effect of climate change and the environment, as well as the idea that government guidelines are more than likely going to be enforced.
- Wednesday 01 September 2010