Investing with a green conscience: renewable energy as an investment

How do retail investors invest sustainably?

First of all, it should be said that “green investing” is a broad field and is not clearly defined. Because not all systems with the “sustainable” label really are. The so-called “Greenwashing“is a popular way for some companies, investment companies or investment advisors to promote their product. After all, eco is in vogue and sells accordingly well. Private investors should therefore be well informed in advance of their investment decision. However, there is still neither a uniform definition nor binding rules that determine what sustainable investments are. However, many companies, funds or ETFs use so-called ESG criteria for environmentally friendly, social and good corporate governance. Analysts and rating agencies check whether the sustainability goals are actually being met, but their assessment may vary depending on the provider.

In general, however, investments in sustainability are definitely promising — and potentially profitable: Green investments could outperform the broad market in the coming years. That's how that should Market volume for sustainable investments According to an analysis, it will grow from currently eight trillion dollars a year to 30 trillion dollars in 2030.

Many investment opportunities in green energy

Due to climate protection goals and the current energy crisis, the focus is in particular on investments in alternative energy sources. This term covers all technologies that can be used to replace fossil fuels with renewable sources. These include “classic”, renewable energy sources such as solar, hydro and wind power, geothermal energy, biomass and biofuels, as well as other technologies such as green hydrogen.

Potential forms of investment are just as diverse as sustainable energy sources.

Private investors could participate in the forecast market growth by investing, for example, in themed funds, stocks, ETFs and various types of direct investments.

• Themed funds or ETFs

ETFs are index funds that are traded on a stock exchange. Investors have a wide range of “sustainable” ETFs available, which offer broad diversification across shares of several green energy companies. Investors therefore do not have to rely on the performance of a single share, but rather distribute the risk. Some examples of renewable energy ETFs include: iShares Global Clean Energy, Lyxor New Energy or Invesco Solar ETF.

With theme funds or ETFs, investors can make targeted and diversified investments in segments such as solar or wind energy. The fund Ökoworld Ökovision and the GLS Bank Equity Fund, for example, invest in renewable energy and energy efficiency.

• stocks

Individual stocks are also suitable for investors who are more willing to take risks, but their price development can be very volatile. The options range from manufacturers of the components required to build solar and wind energy plants to renewable energy suppliers and listed operating companies. For example, RWE, Vestas Wind Systems, SMA Solar Technology or Canadian Solar Inc.

• Direct investments

The purchase of shares in solar, wind or hydroelectric plants is an option for private investors with a higher, available investment volume. One disadvantage, however, is the often lack of diversification and the necessary expertise required to acquire shares in a renewable energy plant.

• Alternative investments - FINEXITY?

Positive forecast for renewable energy

The opportunities for renewable energy (and investments) are immense, as in the next Around 100 trillion dollars in 30 years must be spent to achieve the global target of net zero emissions. 755 billion dollars were invested worldwide in the energy transition last year, a new record. Investments rose in almost all sectors that include a current study investigated: renewable energy, energy storage, electrified transport, electrified heat, nuclear power, hydrogen and sustainable materials. Renewable energy, which includes wind power, solar energy and others, remains the largest investment sector, reaching a new record of 366 billion dollars in 2021 (+6.5% compared to the previous year).

The war in Ukraine and the resulting energy crisis are likely to have given developments an additional boost, such as the IEA (International Energy Agency) At the beginning of November 2022, announced: The shortage of gas, coal and oil could help speed up the transition to a green energy supply. As a result, global investment in sustainable energy is expected to roughly double to more than two trillion dollars a year by 2030. In addition, coal use is expected to decline over the next few years, demand for natural gas should remain on a plateau until 2030 and level off oil demand in the middle of the next decade before falling.

Use sustainable return opportunities

As with all forms of investment, investors should invest as diversified as possible in the potentially fast-growing renewable energy market. Because not every company that is on the market today will still be relevant in the future. Instead of speculating on individual stocks, broad-based thematic funds or ETFs are therefore particularly recommended, which can outperform leading stock indices such as DAX or Dow Jones — but they don't have to. For example, even large funds such as the Fidelity Environment and Alternative Energy Fund achieved a negative performance of -21% this year (as of November 24, 2022). On a ten-year basis, however, the return is just under 11% p.a., which is slightly above the historical average for Dax and Dow Jones (around 9% p.a., including dividend).

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