Investing Sustainable Investing
Investing in Green Technology – the Future Is Now
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By Brett Relander
Updated Oct 25, 2018
Global new investment in renewable energy increased by 2% in 2017 with total transactions also increasing 1%. The industry ended 2018 with new investments of $279.8 billion and transactions totaling $393.8 billion. 2018 is on track to be another strong year for investment with total new investments in the industry at $211.4 billion through the third quarter. Green technology investments are taking a variety of forms, with increases in wind power and electric vehicle developments, the installation of renewable power capacity reaching new highs and significant increases in public market investments worldwide. Across the globe in 2018, Asia-Pac is leading investment with solar-powered innovations drawing in the greatest funding. Thus, what was once a mere glimpse into the future has indeed now become a reality as countries around the world are making substantial investments year over year in green technology.
What's Behind Green Technology Investing
Green technology investing, also referred to as clean technology investing, typically involves the selection of investments in companies with sustainable and environmentally friendly practices and products/services. While some clean technologies offer improvements that increase resource productivity and efficiency, others decrease environmental impact. As green technology continues to emerge as a growing force, several strong industry clusters have emerged with varying levels of investment as innovation trends emerge and change. The United Nations Environment Programme (UNEP) breaks the industry into the following categories: wind, solar, biofuels, biomass, small hydro, geothermal and marine. (For more, see also: Top 10 Green Industries.) As global green technology investments have grown so to have the number of countries participating. The UNEP breaks down global investing by United States, Brazil, Americas (excluding U.S. and Brazil), Europe, Middle East & Africa, China, India and ASOC (excluding China and India).
In 2018, Bloomberg reports Asia-Pac at large as the leader in investments with just under $40 billion total.
Industries
In 2017 green technology continued to dominate new power generating capacity with greater than 60%. Solar and wind specifically have continued their lead receiving $161 billion and $107 billion in new investments respectively in 2017. With the trend for solar and wind maintaining its momentum in 2018, electric vehicles have also been gaining attention. The initial public offering (IPO) of NIO has boosted interest. NIO is China’s rival to Tesla. The company’s IPO raised $1 billion. NIO trades on the NYSE with a price that has gained to $7.96. China overall was also reported as the leader in electric vehicle sales for 2017 with a total of 533,000.
Countries
Public and private markets have been steadily allocating funds to green technology with more IPOs occurring all over the world. In 2017, the developing countries outspent the developed with investment of $177 billion. This can be mainly attributed to the spending of China, India and Brazil which reported a total investment of $144 billion in 2017. Among the nations of the world, China led in 2017 with $126.6 billion.
Public market investment reached a peak in 2014 at $15.1 billion and has dwindled to$ 5.7 billion in 2017. Public markets, however, are pouring most of their investments in solar and wind. In the private market, IPOs were occurring all over the world with share sales from China Everbright Greentech, Omega Geração, New Energy Solar and Windlab.
In the UK, the government continues to maintain its £24.5 million in funding for the Energy Catalyst, established by the Department of Energy and Climate Change, the Engineering and Physical Sciences Research Council, and Innovate UK. During the first round of funding, 40 different technologies received a share of the funds. The Energy Catalyst is open to researchers and businesses from any sector that is able to address energy challenges related to energy cost savings and reduction of carbon emissions. (See article: Why You Should Invest in Green Energy Right Now.)
Green Technology Investments Abound
Investors who are considering taking the plunge into green technology would do well to take the time to understand a bit of background behind this sector, including the goals that serve as the foundation for this rapidly growing field. Those goals include:
Source Reduction: This is the goal of reducing pollution and waste by changing production and consumption patterns.
Sustainability: This is an effort to meet societal needs with methods that can continue to be used into the future indefinitely without depleting or damaging natural resources.
Innovation: The focus is on developing alternatives to types of technology that have been shown to be harmful to the environment.
Cradle-to-cradle design: This involves the creation of products that can be reused or reclaimed, thus ending the cradle-to-grave cycle of manufactured products.
Viability: The aim is to create an economic activity center that focuses on products and technologies that are beneficial to the environment, thus increasing the speed at which such technology and product concepts can be implemented.
Investors will find there are numerous subsectors in green technology that currently provide excellent opportunities for investments. They include:
Energy: With energy often being considered the most pressing issue in the green technology sector, the energy sector focuses on the development of alternative fuels.
Green Nanotechnology: This includes the manipulation of various materials at the nanometer level, which could transform the way in which products are manufactured.
Green Chemistry: This encompasses the invention, development and application of chemical processes and products that are designed to eliminate or reduce the generation and use of hazardous substances.
Planning Your Green Tech Investment Strategy
In choosing a sector for green technology investment, focus on finding not only the most lucrative opportunities but also one that aligns with your own personal and environmental interests. New IPOs can also top prospects as many smaller, successful private companies grow and list on exchanges.
Ideally, all green tech investments can usually be considered as good investments, but keep in mind that there are risks associated with investing in any new technology as well as unknown and emerging companies. Diversification is vital to any successful investment strategy. Investing in different green sectors can help you to diversify your portfolio while protecting your funds. Managed exchange-traded funds (ETFs) and mutual funds can also be good investments leaving the active stock picking to professionals (To learn more about a conscientious, green approach to shaping one's portfolio, see article: Go Green with Socially Responsible Investing.)
Keep in mind that it can be easy to fall into a trap known as greenwashing, in which a company or service claims to be green but actually is not. Take the time to do your research and understand the basis of the technology that is being developed before you decide whether to financially back a particular company. The best way to determine whether the environmental practices and technology behind a company are solid, or are simply greenwashing, is to ask questions.
The Bottom Line
Investors searching for environmentally responsible, financially sound investments will find abundant opportunities. The challenge of investing in green technology is often twofold; the objective is to increase personal wealth and to make the world a better place through socially responsible investing. Admittedly, this can be a somewhat daunting task, but taking the time to conduct your research prior to making an investment can help you to select opportunities that will help you to protect your personal wealth, as well as the environment. Remember to consider the investment level that best aligns with your level of financial commitment, risk tolerance and goals, while also supporting environmental goals and sustainable practices through the latest technological advances.
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