How to Invest in Green, Clean, and Renewable Energy
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In Part 1, we discussed what is meant by thematic investing, and in Part 2, we explained the risks and rewards of using this strategy. In Part 3, we discuss how to invest in three specific themes: green, clean and renewable energy. To help give you an idea of possible investments, a list of exchange-traded funds, mutual funds and stocks are listed below.
As you may know, a lot of people want to help solve our environmental problems by investing money into clean, green and renewable energy. Also, a number of institutional investors (i.e., pension and hedge funds) have reportedly invested billions of dollars into green, clean and renewable energy, and that amount is expected to skyrocket over the next decade.
The U.S. Energy Information Administration has reported that by 2050, nearly half the global energy production is likely to come from renewable sources such as wind and solar power.
What is green, clean and renewable energy?
Many people believe that green, clean and renewable energy represent the same idea, but there are important differences. Here are the definitions:
· Renewable energy: This is any naturally occurring energy source that constantly replenishes itself, usually over a short time period. Theoretically, renewable energy is inexhaustible, meaning that the source is essentially infinite. Examples of renewable energy include wind power (or wind energy), solar power, marine power and hydroelectric power (i.e., energy that uses the natural flow of moving water such as when collected water is released by a dam to generate electricity). Although many renewable energy methods come with tremendous benefits, some renewable technologies may negatively impact the environment. For example, a hydroelectric plant can disrupt fish migration, and also water quality. In other words, some renewable methods are not completely “green.” Impact on the environment varies depending on the source.
· Green energy: This is any form of energy that comes from natural sources such as water, wind, sunlight or an ocean. Green energy should have very little, or zero, negative impact on the environment. Green energy is considered “clean” because it does not release significant amounts of pollutants (such as greenhouse gases) into the atmosphere. The impact on the environment is almost none (which is why it’s considered the most ecologically friendly).
· Clean energy: This is any energy source that emits a small amount of pollution, greenhouse gases, or chemicals. Although clean energy has some effect on the environment, the emitted greenhouse gases or pollutants are so small that the environment is not harmed. Impact on the environment: no adverse impact on the environment.
Now that you know a few of the subtle differences between the three energy types, let’s discuss specific investments.
Investing in green, clean or renewable energy
When deciding to be a socially responsible investor, the first step is to do your homework, that is, research. To help get you started, the following is a list of ETFs, mutual funds and stocks — including their one-year performance.
Although the one-year results serve as a guide, they should not be your main reason for buying. In other words, don’t use past performance in deciding whether a theme will become profitable in the near term. Note: The following securities, listed in random order, are not recommendations.
The following are green and clean ETFs. Keep in mind that many ETFs and mutual funds use the terms, clean, green and renewable energy interchangeably.
Ticker
ETF
1-year return (as of 8/9/2024)
LCDT
BlackRock World ex U.S. Carbon Transition Readiness ETF
+8.79%
FAN
First Trust Global Wind Energy ETF
+3.76%
NETZ
TCW Transform Systems ETF
+26.4%
USCL
iShares Climate Conscious & Transition
+22.7%
SPYX
SPDR S&P 500 Fossil Fuel Reserves Free ETF
+21.7%
FSLEX
Fidelity Environment & Alternative Energy
+16.1%
JCTR
JPMorgan Carbon Transition U.S. Equity ETF
+21%
USNZ
Xtrackers Net Zero Pathway Paris Aligned ETF
+22.6%
QCLN
Nasdaq Clean Edge Green Energy Index
-33.5%
ICLN
iShares Global Clean Energy ETF
-18.1%
Green and clean mutual funds: Before investing in a mutual fund, check to see if the fund has a load (sales charge). The following are “no-load” funds, so there should be no extra sales charges.
Ticker
Mutual Fund
1-year return (as of 8/9/2024)
PRBLX
Parnassus Core Equity Investor
+18.5%
PNOPX
Putnam Sustainable Leaders Fund
+24.5%
AMAGX
Amana Growth Investor
+21.7%
FITLX
Fidelity U.S. Sustainability Index
+21.7%
PARMX
Parnassus Mid Cap Fund
+14.2%
GAAEX
Guinness Atkinson Alternative Energy
-11.2%
Green and clean stocks: Although owning a single stock is theoretically riskier than investing in an index, if you do pick a winner, it should outperform an index (because poor-performing stocks in the index negatively affect results).
As you will see below, some stocks performed spectacularly well over the last year, easily beating the S&P 500 index. There is no guarantee these (or any) stock will continue to do as well in the future.
Ticker
Stock
1-year return (as of 8/9/2024)
FSLR
First Solar Inc.
+8.01%
NEE
NextEra Energy Inc.
+12.7%
BEPC
Brookfield Renewable Corp.
-4.39%
NEXNY
Nexans ADR
+55%
HASH
HA Sustainable Infrastructure Capital
+41%
ENPH
Enphase Energy Inc.
+20.6%
Note: If you are a stock picker, you can also choose stocks that are related to renewable energy such as electric cars, battery stocks, green utility stocks, LED stocks and recycling.
Does it make sense to invest in green, clean and renewable energy?
Climate change is a hot topic and will remain so for years to come. Government interest in clean energy depends on which party wields political power, resulting in more or less regulations, and more or less funding.
Investing in environmental themes will be volatile at times, and there will be winners and losers, just as with any investment. Nevertheless, it is possible to be both an ethical investor and good citizen while earning a profit.
Many businesses are already shifting towards environmentally friendly practices because their customers and shareholders are demanding it. It is almost certain that solar and wind companies will find innovative ways to make renewable energy more cost effective and efficient in the future. High-emission corporations will seek ways to reduce their carbon footprints (i.e., the total amount of greenhouse gases generated by their everyday actions.
Already, many utility companies are moving away from reliance on fossil fuels such as coal and gas to reduce their carbon output. This means including wind, solar and other technologies to improve energy efficiency.
Do your research and avoid the hype
Before investing in any of the above themes, do your homework (i.e., research). In early 2024, clean energy investing made the headlines when the Wall Street Journal reported that motivational speaker Tony Robbins invested $200 million into startup Omnis Energy, a West Virginia coal-fired plant that promises to “turn coal into clean-burning hydrogen without emitting any greenhouse gases.”
Robbins admitted that this revolutionary technology is untested, and that he could lose his entire investment, a risk he is willing to take. For most people, it is too risky to invest more than a small sum (or any amount) in experimental technologies.
Invest in the future
While green, clean and renewable have their risks, there is a place for this investment in your portfolio by choosing a broad-based index fund. Investors with a higher risk tolerance may consider green, clean and renewable investments, including the securities mentioned in this article.
As demand for energy increases across the world, and energy usage accelerates, scientists warn that using so much energy may have a detrimental effect on our climate. Higher temperatures are expected to wreak havoc on the environment until companies seek ways to replace fossil fuels with clean energy. These actions will save the planet while also becoming profitable for investors.