Need a safe place for your money to grow? Wondering how to invest in green energy? We asked the experts
By Chere Di Boscio
With the economy sliding into depression in many countries around the world, and more concerns being raised about pollution, many of us are wondering how to invest in green energy.
It’s not always a straightforward process, and as with making any investment, there are caveats, such as the fact that many funds are just greenwashing, and returns can be impacted by government policies, depending where you live.
Not all sustainable investments are equal, and investors must scrutinise them closely to ensure they’re not greenwashing. It’s vital to do your research on a fund’s holdings and management to be sure they’re truly committed to sustainability.
Additionally, you should know that government policies and mandates regarding sustainable energy are newer compared with other industry regulations and increase the amount of risk in a portfolio. But this depends on your country of residence.
Some of the key factors that drove the benefits to investing in renewable energy over the last decade are now creating some of the biggest challenges. Namely, government subsidies that motivated investors in the past are now diminishing as the renewables industry matures.
How do I know all this, you may be asking? I asked the experts at the Canadian firm RE Royalties for ethical investment tips – especially with respect to putting my money into green energy. I wanted to share what I’ve learned with you, here below!
How To Invest In Green Energy – And More Ethical Investment Tips
First up, how do you consider an investment to be ‘green’ or not? For example, is fracking ‘green’? Nuclear energy?
RE Royalties is focused on investing in projects that reduce greenhouse gas emissions, but only if they are green. A green project is one that creates positive environmental benefit in a sustainable manner.
Our current portfolio consists of renewable energy sources including wind, solar, and small hydro. We also consider other green opportunities including energy efficiency and energy storage, electric vehicles, and sustainably-derived biofuels and biogas.
Nuclear energy, although it does not generate carbon emissions, isn’t renewable or ‘green’ due to the unsustainability and negative impacts of the operation and radioactive waste generated. We would not invest in conventional natural gas (including fracking) because the carbon emissions and extraction are not sustainable or green.
Thanks to the Covid lockdowns, many financial experts are predicting a major global depression? Would you agree?
Yes. Covid has already resulted in recessions in most economies, and these will likely be deeper and longer than any since the Great Depression.
Whether we officially hit a depression worldwide will depend on government action (both in terms of stimulating the economy as well as making good decisions to keep case counts lower). In any case, we are in for a long period of economic challenges, slower and more fragmented growth where some industries will be impacted more deeply and for longer, and others will thrive into the future.
There are still areas of opportunity in markets and for society, if we can focus our recovery spending towards the change we want (and desperately need) to see in society such as addressing climate change, poverty, and modernising our infrastructure.
When the economy does tank, where’s the safest place to put our money?
Cash and secure investments like government bonds are an important part of a balanced portfolio that meets an investor’s risk tolerance. The challenge with safety is that the return is nearly zero, which means that relative to inflation you are losing money.
For any money you need to access in the next 5 years, it should stay safe and out of the markets. With a longer-term investment horizon, a diversified portfolio of stocks and bonds would still be expected to perform.
Rather than looking at what happens when the economy ‘tanks’, focus on what will happen as it recovers. Governments are aggressively injecting money into economies to aid recovery. The unprecedented scale of this investment means that efforts to ‘build back better’ and ‘greener’ could have significant impact to get us on track to combat climate change. Since the Covid market crash, the response from investors has already been overwhelmingly in favour of renewables, with several large clean energy funds increasing by 50-200% or more.
Renewables will provide the vast majority of growth in the energy sector. To make more investments in the sector, RE is offering a Green Bond – a secured investment that offers 6% per year for 5 years. Unlike most green bonds, this one is secured against the projects we invest in for additional investor protection. We have already raised $7.5M towards our $10M target. For more information, check out our website.
What amount of money does a first-time or inexperienced investor need?
Very little. The key is just to get started, and to try saving something every month. There are some investment opportunities available with no minimum, and automatic deposit options to help slowly grow your portfolio. With around $1000, investors can open a brokerage account to start buying exchange-traded funds, which can be a low-cost way to build a diversified portfolio of hundreds or even thousands of stocks in just one fund. RE’s Green Bond, which invests only in green projects, is available with a $5,000 minimum.
A lot of people find investing complicated. What’s the easiest way to do so?
Investing doesn’t need to be complicated, although it certainly can be. There is an incredible amount of information out there that overcomplicates it.
Thankfully a great option is still fairly easy. Assuming that investing is suitable for the individual, the key is to build a low-cost and diversified portfolio of stocks and bonds from around the world, add to it over time, and hold it for years. Not very glamorous, but it works. You won’t be able to brag about a stock pick, or be an overnight tech millionaire, but you can make meaningful returns for a retirement fund.
This may still sound complicated, but you can buy a one-fund-wonder called an ‘asset allocation’ or ‘portfolio’ ETF. This works as a ready-made portfolio that holds stocks and bonds from across the world for instant diversification and can be purchased using online brokers or through banks. Even simpler options include low-cost mutual funds or ‘robo-advisors’.
Both allow you to get started with very small amounts and make ongoing investments but carry slightly higher fees. Robo-advisors will maintain your desired investment allocation (ie to stocks vs bonds) automatically as markets change, and often come with very low (or zero) minimums and helpful features like automatic deposits and rounding up your credit/debit card purchases to add to your investments even just pennies at a time.
Does your country of origin depend on where you can invest, and what you can invest in?
Yes, the investments available to an individual may vary depending on the country of residence, citizenship, investor sophistication, and type of investment. However, generally speaking an individual can invest in public stock markets across the world, whether through funds based in their own country that hold foreign stocks, or by buying individual foreign stocks directly. Investors wondering how to invest in green energy in foreign markets should discuss their specific situation with their financial advisor.
A lot of ‘green’ initiatives, such as wind turbines, have failed spectacularly in places like Germany and the UK. Why do you think wind energy is a safe bet?
There are a lot more successes out there than failures. Have there been failures in projects and governments in the early days of the industry? Absolutely. The same could be said for most markets and emerging industries. The difference in this sector is that success for renewables was essential; early supporters knew that it was necessary to avoid climate disaster and pushed through programs that wouldn’t pay off until much later.
The early failures of countries were only temporary; their true success was to help the industry reach economies of scale for cost reduction and broader adoption. The cost reductions have been staggering in the last decade, with drops of 90% and 49% in solar and wind respectively, on top of reductions already achieved before 2010. Success is often just past failure – renewables including wind and solar are now the cheapest form of new energy production in 2/3rds of the world (including the UK), and are expected to be the cheapest everywhere by 2030.
Wind and solar projects are well-proven and commercially viable opportunities that have been funded by well-informed and conservative investors including pension funds and university endowments. Now that the proverbial ‘bread is baked’ and the costs are down, investors of all types, including those only driven by financial performance, are increasingly looking to renewable energy companies such as RE Royalties to capture this growth opportunity.
As of today, how have you seen the economic devastation wreaked by Covid affecting the markets?
Thankfully, we have been spared from this devastation. Our company has a very resilient business model in an industry that continues to grow despite Covid-19. In fact, investors have been increasingly interested in the clean energy transition – renewable energy funds have gained 50 – 120% since the beginning of the year (up 200+% since the crash).
Although the market is up from highs set before the crash, many sectors are not – the apparent success of the stock market since the covid crash is being carried by consumer staples, healthcare, and tech companies that provide services to work, play, and shop at home.
It is important to remember that the performance of the stock market and the health of the economy are not the same. One major reason is government stimulus – governments are injecting money into the economy, which benefits companies by decreasing their borrowing costs. This doesn’t necessarily mean that the underlying productivity of the economy or unemployment have improved. Money that is provided to individuals through wage loss protection or other programs helps to support spending which also benefits companies, but it is unclear how long this will continue.
What’s your view on cryptocurrency? Do you believe banks will end cash?
Cryptocurrency isn’t much of an investment, particularly for first-time investors. Buying cryptocurrency as an investment is highly speculative in nature and very volatile. Buying cryptocurrency is essentially a gamble on the hope someone will pay more for it down the road, rather than investing in something like a solid business that will produce something of value (and cash flow) into the future.
There are many emerging financial technologies for payment processing, investing, and other services that may further disrupt the role of banks but it is unlikely that government-backed currency will end any time soon.
Cash (ie physical money) might end, but this doesn’t mean an independent cryptocurrency will take over. Currency and printing money is a fundamental part of a government’s ability to maintain its economy and power. More likely, governments will develop digital currencies (indeed, China has done this recently) to provide some of the capability of crypto but with the control and backing of government.
For readers wondering how to invest in green energy or who are looking for ‘the next wave’ here’s my advice. Rather than highly speculative investments like cryptocurrency, we favour investments in renewable energy because you can invest in real assets that will help mitigate climate change, improve air quality and community health, and have the potential for great returns. We have built our business to capture this rapidly growing market by investing in renewable energy projects around the world.
Any final words of investment advice or tips on how to invest in green energy for our readers?
Investors should consider their own situation and speak with a financial advisor for specific advice. For general information purposes – try to keep it simple, low-fee and mostly passive. Focus on time ‘in the market’ rather than timing the market. If investment is suitable for you, just get started, one day at a time.
Positive returns can come with positive impact – consider investing with a mind to sustainable companies (like RE) and industries like renewable energy through strategies that consider environmental, social and governance factors (ESG).
Unsustainable business practices and sectors carry hidden financial risk tied to climate change and other factors that are still yet to be adequately priced into markets.
Need more info on how to invest in green energy? Please click here.
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