by | Jun 16, 2021 | Blog

Energy sources around a light bulb with a growing plant to represent green investments

Summary

  • The world population is growing at a staggering rate, and we are also living much longer than people in previous eras. This means that green investments are now benefiting not only the planet and future generations but also our overall quality of life.
  • Investing in renewable energy helps the planet move towards a more climate-friendly future. By becoming an active contributor in the local and global economy, you can put your money in areas that can support your green values.
  • There are many types of renewable energy investments out there. For example, it is now possible to invest in solar energy, wind energy, hydropower, and much more. The route you choose as you become involved in green investments may depend on the finances available, the area that means most to you, and the level of return you aim to achieve.
  • Sustainability is recognised as being very valuable in the investment world. A growing number of investors now want to know where their money is going and how their money is positively impacting the environment.
  • For a broad approach to green investing that allows you to invest with a conscience but without excessive moral restrictions, you could consider using ESG criteria. This will enable you to gauge companies’ sustainability from an ethical perspective with an environmental, social, and governance viewpoint.

Introduction

With the media paying such close attention to climate change and plastic pollution, it is impossible to disregard the devastating impact we have on the planet. If you plan to make a positive difference and help combat the damage, your money and the issues you care about could benefit from green investing.

According to the recent United Nations World Population Prospects, the world population is increasing at a rate of 83 million people each year. The report predicts that there will be around 9.8 billion people in the world by 2050, and 2.3 billion of us will be over the age of 65. This means that many of us are living longer, so more of our future selves will be affected by the state of the environment, the wellbeing of the people in it, and how our nations are governed.

Green investing is no longer only for the planet and future generations. It is also for your benefit. You, as an individual, can have a positive impact on what the future looks like by investing in a more sustainable world. A considerable part of this process involves supporting the continued development of renewable energy and making sustainable choices. Furthermore, it is possible to invest with a conscience and make a profit at the same time. So let’s look at how you can make a positive impact with green investments.

What Are Green Investments?

Green investments in terms of renewable energy are the investment activities that focus on moving away from damaging energy productions, such as fossil fuels

Green investments are all about investing in ways to help the planet move towards a more climate-friendly future. Ethical, sustainable, and eco investments are all terms that are becoming increasingly prolific within the personal and professional finance world. By becoming an active contributor in your local and global economy, you can put your money into projects that can help act out your values in the real world.

Green investments in terms of renewable energy are the investment activities that focus on moving away from damaging energy productions, such as fossil fuels. Renewable energy companies that offer investment opportunities should also be committed to preserving the environment, conserving natural resources, and reducing pollution. By supporting the generation of alternative energy sources, you can help support projects connected to improving water and air quality, and many other vital environmentally-conscious initiatives.

These green investments come in many different forms, from renewable energy hedge funds and solar investing funds raised by private equity firms to projects started by private individuals. There are also green investment options that involve securities, electronically traded funds, mutual funds, and bonds. These can sometimes be offered by the government and may play a role in generating revenue to fund national projects or renewable businesses.

Whether we like it or not, we live in a world where money holds power to make things happen. By directing your spending power into sustainable products, you can help us move towards a green economic system and society. So let’s explore how you can take practical steps to select and curate your green investment opportunities.

Examples of Renewable Energy Investments

You could choose to invest in solar, wind, or hydropower, for example

As we briefly touched on, there are several avenues for green investments. The specific way you choose to become involved in green investments is often down to the finances that are available, the area that means most to you, and the level of return you aim to achieve. You could choose to invest in solar, wind, or hydropower, for example. Here is a general breakdown of the different types of green investments out there:
 

  • Solar Energy – This is one of the most innovative renewable energy options out there. Just like it sounds, solar power is generated from sunlight. It is mainly used for domestic purposes, but due to technological advancements in the solar industry, it is now also being used for industrial purposes. Over the last couple of years, interest in solar investments has gathered momentum as solar power is viewed as one of the most prominent participants in global renewable energy. There is currently more than 486GW of installed capacity, making solar the third biggest renewable power source in the world. Savvy investors have been focusing on businesses that manufacture solar panels, solar power management firms, and other related solar manufacturing products.
  • Wind Energy – Alongside solar energy, wind power is also one of the fastest-growing renewable energy sources. It is thought that wind power has grown more than 25% per year over the past decade. China, the US, and Germany are currently the wind energy front runners with an installed capacity of 288.31 GW, 122.32 GW, and 62.85 GW, respectively. Green investors are now showing an interest in wind farms and considering the companies that manufacture wind turbines.
  • Hydropower – Unlike some of its fellow renewable energy sources, hydropower is able to offer multiple co-benefits. For example, not only does it generate electricity, but it can also provide water storage for drinking and irrigation, flood control protection, drought-preparedness, aquaculture, and various recreational opportunities. What’s more, some hydro systems can facilitate additional renewables, particularly solar and wind, as they can be added to the system. However, green investors often overlook hydropower as it generally requires higher upfront investments per megawatt-hour of generation capacity. Nonetheless, depending on the risk appetite of the operators and investors, the electricity generated from hydro can be a solid investment with long-term purchase agreements that involve utilities and industrial consumers.

Rising Popularity of Green Investments

There are now more than $21.4 trillion invested sustainable assets globally, with $13 trillion of these investments being in Europe alone.

Green investments are no longer considered niche. Over the past decade, it has been recognised that sustainability is incredibly valuable in the investment world. A growing number of investors now choose to investigate where their money is going, and they want to know what positive advancements their money can support. These investors understand the importance of ensuring that their investments are correctly aligned with their green values.

In response to this sustainable way of investing, more governments, businesses, and private investors are implementing the principles of green investing. This is having an effect on the market and boosting demand for renewable energy investments. There are now more than $21.4 trillion invested sustainable assets globally, with $13 trillion of these investments being in Europe alone.

There were almost 500 green bonds launched on the market in 2019, which was a 25% increase from 2018. In spite of a tumultuous year for markets, the investment in ethical funds set a promising rate for launches during 2020, with the year finishing off with a record number of ESG-oriented funds. The consequence of this for businesses across the globe means they have a key choice to make: they either need to improve their ethical policies or risk being overlooked by asset and fund managers. For example, BP recently announced that it plans to increase investments in renewables tenfold and reduce oil and gas production by 40%.

Based on the Canadian Responsible Investment Trends Report, responsible investment continues to grow at a rapid rate in Canada. As of December 31, 2019, responsible investment (RI) assets under management (AUM) amount to $3.2 trillion. This corresponds with a growth of 48.5% for RI AUM over a two-year period, equivalent to a growth rate of 21.9% per annum. Energy efficiency has also been ranked at number two out of the most commonly cited environmental issues, so it is no surprise there is such interest in Canadian renewable energy investments.

Understanding Sustainable Name Differences

As well as green investing, which is a type of sustainable investing, you may come across many other terms

By now, we have established that green investing is growing in popularity, as more people want to align their money with their green values. At this point, let’s move on and clear up some of the confusion connected to sustainable investing. There is a bit of a challenge on our hands, as there is currently no industry-standard definition of sustainable investing. Consequently, the approach is somewhat open to interpretation, as it can mean different things to different people.

When most people talk about sustainable investing, they mean making economic decisions with the objective of generating long-term financial returns while contributing positively to society and the environment. As well as green investing, which is a type of sustainable investing, you may come across many other terms. For example, impact investing, values-based investing, ethical investing, socially responsible investing (SRI), and conscious investing are worth considering. Additionally, the environmental, social and governance (ESG) investments we briefly mentioned earlier also fit the bill. We’ll explain more about ESG investments and principles shortly. While these terms do all broadly carry the same meaning, there are some critical differences in how they operate as investments, so you must do your research.

To get you started on your sustainable investment journey, here is a basic breakdown of some of the main approaches and what they may involve:
 

  • Sustainable investing – Sustainable investing is when you actively choose businesses that positively impact the world or community around them. This could be anything from green power usage to supporting social initiatives (locally or in developing countries). Sustainable investing is less restrictive than other responsible investments, as it allows you to consider companies that are neither all good nor all bad. With this model, you could even invest in an oil and gas company that invests in solar energy. While some investors feel that this approach might conflict with their values, others enjoy the variety.
  • Ethical investing – Ethical investing is a little stricter, as you should actively avoid companies or industries that have a negative impact on the environment or society. The selection process is known as negative screening. The types of sectors you would expect to be excluded from ethical investing include oil and gas, tobacco, animal testing, and gambling.
  • Impact investing – This is an excellent option for those who love numbers and statistics. With impact investing, you actively choose companies that positively impact the world in ways that can be measured. For example, the target could be anything from generating a specific amount of renewable power to saving a certain amount of water.

ESG Principles for Green Investments

Infographic of environment, social, and governance (ESG) investment

One of the best aspects of ESG investing is that you do not have to sacrifice your potential financial returns

If you want to look for a broad approach that enables you to invest with a conscience but without extreme restrictions, you may want to consider green investments using ESG criteria. This is an option that allows you to measure the sustainability of companies from not just an ethical perspective but also from an environmental, social, and governance viewpoint.

In addition to calculating the current sustainability level of a company, ESG scoring can also help you consider the long-term performance it will have on environmental, social, and governance-based principles. These observations may help you future-proof your investment and enable you to ascertain whether the company is projected to continue on the path you consider to be necessary.

Here are some examples of the factors that are considered when making investment decisions using ESG criteria:

  • Environmental – How renewable energy companies are making an impact on the environment:
    • Climate change impact
    • Waste management
    • Ecological implications
    • Decommissioning procedures
  • Social – How renewable energy companies engage with and impact their employees, clients and communities:
    • Local jobs
    • Gender equality
    • Diversity and inclusion
    • Consumer privacy policies
    • Health and safety on site
    • Open communication with the local community
  • Governance – How the renewable energy company is governed or managed:
    • Company ownership
    • Business ethics and culture
    • Financial reporting
    • Business structure
    • Executive remuneration

One of the best aspects of ESG investing is that you do not have to sacrifice your potential financial returns. In fact, it may even pay to have green principles. There is growing evidence to support the fact that green investments can be opportunities for financial gain. One Harvard study reported that companies that demonstrated good ratings on the sustainability issues most relevant to their industries outperformed those with poorer ratings on the same issues.

Morningstar (an investment research company) went on to support these findings by stating that companies that embrace low-carbon technology are better equipped for the future. The companies that treat their employees fairly are also more likely to have a consistent cash flow (as reported by Morningstar).

It is, however, worth noting that green investing, like any other form of investing, still comes with its risks. There is a chance that you could get back less than what you initially invested. It is also not a quick way to make money. Green investments should be seen as a medium-to-long-term commitment, meaning you ought to be prepared to invest for a minimum of five years.

Closing Thoughts

It is essential to have your wits about you when making any form of investment. Sadly, some companies disguise their true identity and wish to portray themselves as green to gain investment opportunities. They will seek to raise funds through green branding and fail to follow the steps they initially pledged during the fundraising. This is one of the reasons why performing due diligence is so important for current and future investors. Before making any investment, check the company’s green fund prospectus and any other parameters such as annual accounts and stock filing.

There are many exciting and reputable renewable energy investment opportunities out there. Through green investments, you can personally make a difference to the planet and help improve the outlook for yourself and future generations. Green investments allow you to make a positive impact, with the potential of significant long-term returns.

FAQs

Is green investing profitable?/h3>

As with any investments, there is some risk involved in green investing. In some cases, you might not get back what you invested or make a profit. A study conducted by Northeastern University in Boston reported that of the 400 companies with investments in renewable energy, roughly 20% of companies saw a return on investment of 15%. The business researchers noted that the ideal is an annual rate of return of between 20% and 25%.

 

How can I invest in the environment?

There are various approaches to investing in the environment. You could invest in securities that support green initiatives, invest in solar bonds, or participate in crowdfunding for a renewable energy project. Additionally, you could simply switch to a renewable energy supplier for your utilities. There is a green investment opportunity out there, whatever your budget.

 

Are green and eco investing the same?

Yes, green and eco investing are the same. In the world of investing, green or eco investing is a focused form of ethical investing which aims to solve or aid environmental problems through a product or practice. Investing in renewable energy, for example, is classed as a green or eco investment as it is trying to help tackle the climate crisis.

 

What renewable energy should I invest in?

The type of renewable energy you choose to invest in will come down to personal preference, investment availability, and how much money you have to spare. Some renewable energy projects are more expensive to invest in than others. Hydropower, for example, tends to be on the higher side, whereas solar power can be a more accessible option.

 

What is the opposite of green investing?

Sin stock is a term for a publicly-traded company that is involved in or connected with an activity that is deemed unethical or immoral. These sectors tend to include alcohol, tobacco, weapons manufacturers, gambling, and sex-related industries. It could be said that sin stocks are the opposite of ethical investment styles such as green investing.

 

Westbridge Energy Corporation

Subscribe To Email Updates

.

Join our mailing list to receive the latest news and updates from Westbridge Energy Corp.

You have successfully subscribed to the Westbridge email list.