(Dow Jones) While the oil rig disaster in the Gulf of Mexico is pounding BP PLC's stock and reputation and hammering local industries and real estate values, the long-term impact could be more choice for individuals who want green investments.

Demand for these funds and stocks have soared in recent years, especially from foundations, pensions and socially minded investors. The graphic coverage of the BP disaster which followed a rig blowout and fire that killed 11 crew members "might push some people over the edge," says Eric Becker, chief investment officer at Clean Yield Asset Management, headquartered in Greensboro, Vt.

"Despite the roller coaster that a lot of alternative energy stocks have been on, there is huge potential," he says.

BP was once considered best-in-class by many financial advisers and fund managers. "All of that is out the window because this is such a catastrophe," he says. "Most of our clients are disturbed by the spill."

Malcolm Gissen, a San Francisco registered investment advisor who manages the Encompass Fund, which has a heavy energy emphasis, says the disaster "will focus more attention on America's need to develop alternative energy."

The number of "green" funds has soared in recent years. It is expected to continue to grow as the demand for alternative energy sources increases, and as investors seek more investment options.

In recent years, more big-name investors have warmed to green investments, but they remain volatile because U.S. climate change legislation has stalled, leaving many U.S. businesses with an unclear sense of the country's direction and concerns about whether they can count on the types of subsidies that have helped solar energy and other industries flourish in Europe.

Still, investors and advisors recognize the potential in this area.

"The main risk is that not all green funds are the same," says Morningstar mutual fund analyst Michael Herbst. He says some are very concentrated and more volatile and others are very diversified across a number of industries. "Investors have tended to use these funds inefficiently, buying high and selling low."

Herbst continues to recommend the Winslow Green Growth Fund, because of the fund manager's experience, and Portfolio 21, a global equity mutual fund.

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