Green technology the (also known as clean tech and climate tech) invests in sustainable practices to reduce human impact on the environment. The goal is to support a more sustainable future for generations to come.
Investors are noticing, with funds from private equity to pensions adding green investments. But these stocks should be in a diversified portfolio, and remember that shares can go down as well as up.
Investing in Green TechnologyRenewable Energy
A shift to renewable energy can be a win for the planet and your portfolio. It will help preserve our natural environment, create new industries and make electric cars more affordable.
But if we want to meet these ambitious targets for radically reducing emissions, renewables will need far more investment than we currently see. And while it is still difficult to invest directly in clean technology projects, the number of options for investors is expanding.
Investors can invest in a range of individual companies involved in the production of green energy, from manufacturers of solar panels and wind turbines to companies that produce the metals used in these technologies. Alternatively, they can buy shares in a range of exchange-traded funds (ETFs) that provide broad exposure to green technology stocks.
Another option is to invest in yieldcos, businesses that develop and own renewable power generation and pay high dividends to their unitholders. These are not for investors with low-risk tolerance, but they can offer an attractive way to gain exposure to this fast-growing sector.
Electric Vehicles, Investing in Green Technology
The Covid-19 pandemic may have temporarily put a dent in the global EV sales boom, but the vehicles remain a powerful tool to slow climate change and the economic and social harms it causes. That makes investing in the sector a sensible move for many active investors.
The most obvious way to play this theme is by buying stocks of car manufacturers like Tesla, Ford, Nissan and China’s Nio and Xpeng. But it’s important to consider the entire supply chain. Companies that produce the specialized batteries, charging stations and materials used in EV motors are also likely to benefit from rising demand.
Some of these suppliers are also likely to benefit from changing government regulations that limit carbon emissions, which could drive a steady rise in EV sales for years to come. But a high-growth industry attracts competition, so stock prices can get bid up to levels that make it difficult for investors to earn attractive returns.
Biofuels
Biofuels are the largest alternative energy source when it comes to transport fuels and they are a good choice since they don’t produce greenhouse gases. They also boost the agriculture industry and can reduce dependence on oil.
Investing in companies developing biofuels can help you profit from this green technology. Stocks (equity instruments) are a great way to invest in this sector as you’re eligible for dividend payments and can benefit from the growth of the company.
It’s important to do your research though as many biofuels have a negative environmental impact. For example, converting native land to grow biomass crops could lead to deforestation and increased use of fertilizers, causing water pollution. This is particularly true for first generation biofuels. However, there are more sustainable second and third generation biofuels. These are made from microalgae which can be grown on non-food land or in wastewater, saline or brackish water. Moreover, they don’t compete with food production.
Energy Efficiency
In many ways, energy efficiency is at the heart of green technology. It can reduce waste, conserve natural resources and minimize carbon emissions. It can be applied to products and processes ranging from smart grid energy use optimization solutions to tidal energy systems and self-sufficient buildings.
Governments and financial institutions around the world are increasingly tackling the energy efficiency investment opportunity. A new toolkit, compiled by EEFTG with support from the G20 countries, provides a framework to help them scale up their efforts.
Investors should take a closer look at companies that prioritize energy efficiency. They can benefit from financial gains, improved reputation and a lower environmental footprint, and may see their share prices increase as a result. As a bonus, these companies also tend to have lower operational costs than their less energy-efficient counterparts. Developing standardized protocols to measure energy baselines could further reduce transaction costs and boost the confidence of investors in the projected outcome of efficiency investments.
