Before we analyze the whole thing and dwell on the subject of green energy, let us clarify the notion and provide you with a definition to avoid any divergence in interpretation. So, green energy, otherwise known as clean energy, is a type of energy generated from natural resources, such as sunlight, wind, or water. The purpose of the transition to clean energy is to cut carbon emissions or completely eliminate carbon footprint by withdrawing from fossil fuels — coal, oil, and natural gas.
SRI & ESG
So, what should we focus on when we speak about green energy investments? Obviously, on renewable sources of energy and related technologies: you can either explore the stocks that belong to the companies operating on solar, wind, or hydroelectric power, or you can pick the indirect approach. Power generation technologies prove to be a wonderful option, no arguing here, but there's a large selection to choose from: pay attention to battery technologies, electricity network infrastructures, electric cars (quite popular nowadays!), or mining companies that produce raw materials for solar panels.
Now, we've covered the basics. Time to increase insight and advance knowledge. If you're really interested in the subject and you've been considering this type of investment for a while already, you must be curious if there are any specifics you should know before jumping in headfirst.
Yes, there are a few things to keep in mind. First off, green energy investments are a form of socially responsible investing (SRI). This is a strategy that aims to generate social change and financial returns for an investor. In short, you surmise that the active assets of the companies you've chosen can make a positive sustainable, or social impact; they can help the world. While you're still hoping to make money in the long run, this may not be your ultimate goal: you shift it to the second place, bringing environmental motives and concerns to the foreground. There's no way to explain it in more laconic terms: as an investor, you just want to be socially conscious, and you can make such investments into individual companies with good social value or through a socially conscious mutual fund or exchange-traded fund (ETF).
You may have thought you've gathered information on SRI, and now you can be free, but bear with us for a while more: ESG, another significant point to brood over, obstructs you.
ESG, or Environmental Social and Governance investing, refers to a set of standards for a company's behavior used by socially conscious investors to screen potential investments. As you can see, the abbreviation implies three particular aspects:
Environmental. This criterion considers how a company safeguards the environment, including corporate policies addressing, for example, climate change, biodiversity loss, greenhouse gas emissions, pollution mitigation, deforestation/reforestation, energy efficiency, and water management.
Social. This one examines how the company manages relationships between people. Naturally, data is reported on employee safety and health, working conditions, diversity, equity, and inclusion, and conflicts and humanitarian crises, and is relevant in risk and return assessments directly through results in enhancing (or destroying) customer satisfaction and employee engagement.
Governance. Deals with corporate governance, for example, preventing bribery, leadership, corruption, Diversity of Board of Directors, executive compensation, executive pay, audits, internal controls, cybersecurity and privacy practices, management structure, and shareholder rights.
Practically, ESG investors manage to find an equilibrium between income and environmental impact exerted by the company or the active assets of the company they invest in; they often expect to get an even greater payoff in the long run.
But how do you know the ranking? How can you be sure that the company of choice is at the top of the list and not tailing along? Easy: investment firms often draw and issue SRI and ESG reports to exhibit how eco-friendly certain companies are. Such ratings do not always apply to those that invest in green energy, but if this is what you do (or intend to do), they may come in handy. Social and ecological impact, remember?
However, don't rely on them too much and check different sources: SRI and ESG ratings can differ from company to company as each firm uses its own ranking systems and can possibly have its own criteria.
Perspective assets
Enough talking! Let's do the deed!
Evidently, you've had quite a bunch of things to reconsider and ponder over, and now you are curious to know what companies truly deserve your attention, what they look like, and how you should approach them. Well, here we have five examples that can be of interest to those who are planning to conquer ecology or make a contribution. However, you shouldn't limit yourself to these options: whatever we offer is just a drop in the ocean; you are totally free to do a little digging and explore the market yourself.
iShares Global Clean Energy ETF (ICLN)
iShares Global Clean Energy exchange-traded fund is one of the top picks and most widely known ESG ETFs in the clean energy sector. It was launched in 2008 and currently manages assets worth $5,4 billion.
This green energy ETF invests in the largest companies developing solar and wind-powered technologies. Among these you can find Enphase Energy, Solaredge Technologies, Plug Power, and First Solar. However, iShares Global Clean Energy fund doesn't strictly limit itself to energy technology companies: they also work with manufacturers producing electric cars, network operators, and semiconductors.
ICLN ETF exhibited a 19,1% compound annual rate of return for the last 5 years.
First Solar (FSLR)
Another great investment option is First Solar. First Solar is an American manufacturer of solar panels and a provider of utility-scale PV power plants and supporting services that include finance, construction, maintenance, and end-of-life panel recycling. It is a leading global provider of comprehensive PV solar energy solutions with over 17GW installed in more than 35 countries. Interestingly enough, this company not only sets up the panels but also controls the whole process throughout its lifecycle, from production to disposal of the components when they expire.
In 2022, First Solar stocks soared by 55%, reaching $136,7 for a stock. In 2023, the company has been growing, and to date, its shares cost approximately $203,65 for a share.
Green Bond Fund TIAA-CREF (TGROX)
The TIAA-CREF Green Bond Fund is an actively managed green bond fund that is specifically earmarked to raise money for climate and environmental projects. So, practically, this mutual fund invests in bonds of companies and governments focused on environmental sustainability, and you might find the following fact peculiar: one of the largest assets of the fund is the New York State Energy Research and Development Authority. TIAA-CREF is vigorously developing, so its assets quickly respond and change as new bonds get issued.
Currently, TIAA-CREF Green Bond Fund pays out dividends in the amount of 3,29% and has $100 million in assets under management.
Brookfield Renewable Partners (BEP)
Brookfield Renewable Partners Brookfield Renewable operates one of the world’s largest publicly traded platforms for renewable power and decarbonization solutions. It is a publicly traded limited partnership that owns and operates renewable power assets, with corporate headquarters in Toronto, Ontario, Canada. As of the end of 2017, Brookfield Renewable owned over 200 hydroelectric plants, 100 wind farms, over 550 solar facilities, and four storage facilities, with approximately 16,400 MW of installed capacity.
BEP stocks bring in 3,36% of dividend yield, so investors may find this option particularly attractive. The company proved its success: in 2022, its stocks grew by 5%.
Invesco Solar ETF (TAN)
While there's still a lot to cover, we'd like to highlight one final option and give you some personal space to figure things out or do a little research yourself.
Meet Invesco Solar ETF. This is a green energy investment fund investing in solar panel manufacturers and grid operators — in companies that are constantly increasing the use of solar power.
The largest assets of the fund include stocks that belong to Enphase Energy, Solaredge Technologies, First Solar, and Sunrun. A little less than half of the assets are in the USA, and 21% are in China.
TAN ETF has had an average yield of 32% for the last 5 years. The assets under management cost approximately $2,9 billion.
Why invest in green energy?
The notion of clean energy is popular with different kinds of people: governments change policies, ordinary citizens go zero waste, IT students offer new solutions, and eventually, new campaigns pop up, but what makes investors make such decisions and choose green energy companies instead of those that deal with fossil fuels?
In fact, there are several possible reasons for that.
One of them is crystal clear: fund clients prefer ecology-related assets because they genuinely want to support environmental policies and initiatives. It's good for the world, brings money in, and adds one karma point to your future.
Many may consider it a utopia, but such investments indeed sustain and somewhat secure the transition to renewable energy sources. In the end, they can even help cut down carbon emissions, which, in turn, exert a detrimental influence on the climate. Investors can safely conclude that work for the benefit of all mankind aligns with their values and can possibly outline a better future for the entire planet.
However, others stick to a more materialistic point of view: green energy investments are a good financial move. Experts can argue all they want, drawing up forecasts and offering bogus or dopey predictions regarding the timeframe of the transition to renewable energy sources; investors do not doubt that this is a stated fact that is bound to happen, so they... take action. Clean energy companies now have a brilliant opportunity to become major energy manufacturers or energy providers for the world, so desperately in need of eco-friendly technologies. Fund clients, observing the gradual transition, see a chance to make money as these clean energy companies are growing in size and importance.
Aside from the beneficial impact on the public image, such investments can become a wonderful form of diversification, especially for those who already work with fossil fuels like oil or coal.
Looking for green energy assets
So, you're ripe for your own research! Where do we start?
Right here. Actually, the simplest way to get acquainted with the subject is to breeze through the list of large investment funds and find out which companies they include: your first stop may be iShares Global Clean Energy ETF (ICLN), the one we have already mentioned. If you're in the mood for even more strenuous work, check out the company in energetic and technology sectors on the New York Exchange and NASDAQ.
A less obvious option is to constantly read annual reports on stable development: they are normally published by renowned and respectable companies with a brilliant reputation in the field, so you can rely on their readouts and continue seeking trustworthy stocks and bonds. Returning to what has been written before, you can focus on SRI and ESG: many investment firms post lists of shares with the highest ranking, and such lists often include companies dealing with clean energy.
Conclusion
Green energy, also known as clean energy, is a perfect opportunity to get access to companies that are currently developing or implementing renewable energy technologies. It is an ideal investment: you contribute to ecological sustainability while making money in the rapidly developing niche.
Disclaimer
Market opinions may not coincide with the editorial viewpoint. Traffic Cardinal does not provide investment advice. The material is published for review purposes only.
