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Investing in the green economy

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Investing in the green economy

  • As the globe is pushing towards a more sustainable society, green topics have also permeated the world of finance.
  • In fact, green investing has topped $10 trillion since 2007 with clean energy and meatless plant food production at the forefront.
  • Green investments are investments made in companies that support environmentally friendly practices or provide environmentally friendly products.
  • Bonds, funds and shares are all considered appropriate vehicles for investing in the green economy.
  • Some market sectors investors can invest in include clean energy such as solar and wind power, biofuels, geothermal, water, energy efficient manufacturing, as well as agriculture.
  • Although green investing may only include a handful of industries today, the practice is increasing at a steady pace as more and more individuals are demanding products and services that are environmentally cleaner.

 

From recycling all sorts of household goods to alternative forms of power generation with solar panels or wind farms to organic groceries and more sustainable forms of farming and fisheries, our world has increasingly gone green in recent years.

As the environmental impact of certain industries have become even more apparent, green topics have also emerged in the financial world with investors not only avoiding well-known polluters but also paying more attention where they place their money, making sure that they too can push towards a more sustainable society.

The Global Climate Prosperity Scoreboard which was launched by Ethical Markets Media and The Climate Prosperity Alliance so as to monitor private investments in green companies estimated that private green investing has topped $10 trillion since 2007, particularly in clean energy sectors like solar, wind, geothermal, hydrothermal and others, as well as the meatless plant food.

Here we analyse what green investments are and delve deeper into some of the opportunities available.

 

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What are Green Investments?

Often referred to as eco-investing or green investing, this refers to a form of socially responsible investing where investments are made in companies that support environmentally friendly practices or provide environmentally friendly products. On the other hand, green finance refers to investments and other financial instruments which aim to deliver environmentally friendly, energy efficient and low carbon projects.

For instance, this could be a massive corporation like General Electric (GE) which is involved in developing electric generators powered by the wind or a small start-up business in the solar panel or biofuel industry.

 

Types of Green Investment Products

There are several investment vehicles when it comes to investing in the green economy. These include:

  • Bonds – It is possible to invest in low risk bonds in companies that focus on green issues. The green bond market has seen strong growth over the years. In effect, in 2012 green bond issuance amounted to just $2.6 billion, but by 2019 that number rose to $257.7 billion.
  • Funds – You can invest in a mutual fund and allow a fund manager to make investment decisions on your behalf based on the prospectus of the fund. This type of investment vehicle allows you to take a low, medium or high risk or a combination of these as the fund will usually have a diverse spread of assets.
  • Shares – Alternatively, you can invest directly in companies’ shares that are connected with the green economy almost anywhere in the world, while you are at liberty to decide which shares to buy or sell. However, investing in shares means that you are taking a medium to high level of risk due to the fact that you are likely investing in companies that operate in high-risk sectors.

 

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Which are the market sectors green investors may invest in?

 

Energy

Interest in clean energy is driven by sustainability issues, oil depletion and energy security concerns, as well as political decisions and global climate change. Within the energy sector there are many different subsets of clean energy that have gained popularity.

Solar Power

From powering homes and buildings to a variety of smaller items like bulbs and radios, solar power has become increasingly important since it is both plentiful and virtually pollution free. And in contrast to hydropower which is limited by the finite nature of suitable dam sites and political restrictions on available supplies of water, the sun is considered an everlasting source of energy. In effect, in 2017, solar power provided 1.7% of the total worldwide electricity production, growing 35% from the previous year, while as of 2018, the unsubsidised levelised cost of electricity for utility-scale solar power is around $43/MWh (megawatt-hour).

With prices in photovoltaic electrical power dropping, the adoption of grid connected solar PV modules is quickly rising, yet solar power is still relatively expensive when compared to grid electricity, while despite the boom in solar power investment, the industry remains dependent on government incentives.

Wind

Wind power is the conversion of wind energy into more useful forms, usually electricity. A highly clean fuel source, wind energy does not pollute the air like power plants that rely on the combustion of fossil fuels like coal or natural gas, while wind turbines do not produce emissions that may cause acid rain, smog or greenhouse gasses. At the same time, land-based utility-scale wind is one of the lowest-priced energy sources available. With electricity from wind farms sold at a fixed price over a long period of time, wind power is highly cost-effective. In 2018, wind supplied 4.8% of worldwide electricity, while wind power supplied 15% of the electricity consumed in Europe in 2019. And in the US alone, wind power capacity has grown 15% each year, with wind being the largest source of renewable power in the US.

However, as an energy source wind can be intermittent since it is inconsistent and as a result, wind energy is unlikely to grow to be more than a supplemental source of energy. Solar power remains the more attractive investment because of its high growth rate, better profit margins and wide range of investment options.

Biofuels

Biofuels are derived from biomass, recently living organisms or their metabolic by-products, such as manure, corn, soybeans, sugar cane or palm oil. This is a renewable source of energy and is a form of stored solar energy. Plant matter used as a fuel can be constantly replaced by replanting and a reasonably stable level of atmospheric carbon can result from plant matter used as a fuel. However, biomass use can still contribute to global warming. This happens when the natural carbon equilibrium is disturbed, such as in deforestation.

The drawback to relying on biofuels is that it puts pressure on grain costs and water supplies, which in turn can dramatically increase the cost of raising livestock. This means that alternate feed stocks, such as switchgrass and algae must be found.

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Geothermal

Geothermal is another energy source that is viewed as sustainable because it is provided by the vast heat of the earth, only a very small fraction of which may be enough to meet the world’s energy needs. Although this source of energy releases greenhouse gases trapped deep within the Earth, these emissions are much lower per energy unit than those of fossil fuels. Cost-effective, reliable, sustainable and environmentally friendly, geothermal power has historically been limited to areas near tectonic plate boundaries, but with the advent of technological advances, these have dramatically expanded the range and size of viable sources, opening a potential for widespread exploitation.

Water

It surrounds us in the oceans that make up nearly three-quarters of the planet’s surface and it falls from the sky as rain. Water is often considered as the most renewable of all Earth’s resources, but as the world’s water needs grow, so does concern that we’re increasingly using up supplies. In an effort to tackle this problem, several companies around the world have rallied to develop a way to generate clean water so as to solve the global water crisis that afflict nearly 25% of the world’s population.

For instance, the cleantech water industry is focused in several areas particularly waste water treatment and general filtration. Bearing in mind that water is an essential resource and the planet’s natural supply of water is virtually static, it is likely that there will be room for growth in this industry for several years to come.

Energy Efficiency/Manufacturing

Several green products require fewer natural resources either in manufacturing or during their life span. This means that these will cost less either up front or over the total time period of their use and these products don’t have to be high tech. The more economic sense they make for consumers, the more likely they are to be adopted. Typical examples include fluorescent light bulbs and improved packaging that reduces waste.

Agriculture

Green investing in the agricultural sector ranges from more efficient farming to micro and drip irrigation that reduces water usage to natural pesticides. Investments are likely to be driven by cost-effectiveness, regulatory mandates, consumer demand and public interest. In effect, global sales for organic foods have increased between 2000 and 2018, with sales amounting to $95 billion, up from nearly $18 billion back in 2000. At the same time, organic food production has become increasingly regulated, so that organic certification is necessary to market foods as such.

 

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Here are some examples of companies that come under the green market sector.

 

Solar Energy

First Solar, Inc. (FSLR) – A leading producer of solar modules and systems, First Solar is an American manufacturer of solar panels and provides utility-scale PV power plants and supporting services including finance, construction, maintenance and end-of-life panel recycling.

Enphase Energy (ENPH) – Headquartered in Fremont, California, Enphase designs and manufactures software-driven energy solutions that include solar generation, home energy storage and web-based monitoring and control.

Renewable Energy

WaterFurnace Renewable Energy Inc. (TSE:WFI) – WaterFurnace Renewable is a Canadian company that specializes in HVAC systems (Heating, Ventilation & Air Conditioning) that are very different from the conventional ones we’re used to seeing. The company’s systems take advantage of steady temperatures below ground to provide heating and cooling for residences and businesses. These systems pay for themselves in a reasonable amount of time.

American Superconductor (AMSC) – The company is known for making electrical systems for wind farms and turbines. They also offer Smart Grid technologies for grid operators to optimize grid capacity and integrate renewable energy sources into the grid.

Organic Products

United Natural Foods (UNFI) – Founded in 1996 following the merger of two regional distributors namely Mountain People’s Warehouse and Cornucopia Natural Foods, United Natural Foods is one of the largest organic food companies and wholesale distributor of healthy food options such as groceries, nutritional supplements, bulk and foodservice products and personal care items amongst others.

Green Mountain Coffee Roaster (GMCR) – Specialising in organic coffee since 2001, Green Mountain has been selling fair trade coffee – coffee purchased directly from the growers at a higher price but through healthier working conditions. The company also sells an all-natural paper hot beverage cup. Produced in partnership with NatureWorks and International Paper, the cup is lined with a bio-plastic made from sugar – a 100% natural and renewable resource.

 
Focused on a handful of industries today, green investing has the potential to grow as consumers, governments and businesses demand products and services that are more efficient, environmentally cleaner and cheaper. And as is the case with investing in more usual sectors, green investments also require you to decide whether you are looking for capital growth or income or a combination of both, while you also need to take into account the level of risk you are prepared to take and to ensure that your portfolio is diversified.

Ready to green up your portfolio? Qualified and experienced, our financial investors work with tailor-made portfolios and are able to address clients’ unique needs, while with direct access to the markets, they can assist you in the best possible way without being restricted to recommend any particular investment. Whether you choose individual companies, mutual funds, ETFs (exchange-traded funds), stocks or bonds, our advisors can help you find the appropriate green investments. Get in touch with us today.