Innovations such as renewable energy, electric vehicles, and green chemistry are vital in reaching sustainability targets and halting the impact of climate change. From small niches, they have matured into stable markets that play a more significant role in daily life and are adopted on a massive scale, so it comes as no surprise that green technology is now a lucrative investment sector.
Also known as clean technology investing, green technology investing implies selecting those companies that have a sustainable business model, low environmental impact, and generally offer eco-friendly products and services. On a global scale, green investing is turning into a megatrend, having totaled nearly $394 billion in 2018. In the following five years, the interest in green stocks is expected to grow even more, as the market sentiment favors impact investing, and people are generally more aware of the importance (and profitability!) of clean technologies. According to Bloomberg data, the Asia-Pacific region is the leader in green investments, totaling around $40 billion, and funding sources are expected to increase.
What counts as green investing?
The United Nations Environment Programme (UNEP) splits green industries into these categories:
● Wind
● Solar
● Biofuels
● Biomass
● Small hydro
● Geothermal
● Marine
Solar and wind are the most powerful out of all these industries, having received a combined $268 in new investments in 2017. While their influence is expected to grow, electric vehicles and self-driving vehicles (green transportation) also show tremendous potential. For many years, this sector hasn’t been favored by conservative investors, who believed that it’s too young and volatile to yield long-term results. However, after Warren Buffet backed electric cars and acknowledged their potential, electric car stocks have been rising steadily and continue to draw investor interest.
Additionally, other micro-sectors are beginning to emerge:
● Waste reduction companies, which recycle everything from paper and plastics to industrial waste, batteries, and electronics. In many cases, waste reduction companies also open their recycling plants to support the local economy.
● Organics: companies that use organic, sustainable, ethically sourced raw materials for their products, such as clean beauty brands and organic farms.
When choosing green stocks, investors may look at companies that have activated in this field from the very beginning, but companies that go green are also an option. Research has shown that going green can boost stock prices and increase investor interest. If you’re looking for green investment opportunities, looking at companies that have transitioned to sustainable business models is just as effective as analyzing the veteran players in the green field.
The basics of a green investing strategy
When you’re looking to diversify your portfolio, you’re probably wondering if a particular stock is indeed worth it and if it has growth potential. In the case of green technologies, the answer is yes, this is one of the fastest-growing fields, and it will have an even more significant influence in the following years.
But when it comes to the companies that you should invest in, not the sector has a whole, then it goes without saying that you should do some research before buying stocks. Don’t forget that every investment has an inherent risk, especially if it’s a new one, and it is your job to manage this risk. One way to do that is to start by investing in the most prominent green stocks that have delivered an excellent performance for a very long time, such as General Electric (GE) and Siemens Gamesa (GCTAY). You can start your journey into green investments gradually and combine them with traditional investments until you develop a long term strategy. In time, you can make the transition from crude oil trading platforms to green investments or figure out the right combination between the two. Keep in mind that some companies are greener than they look. For example, oil companies might seem the complete opposite of green. Still, some of them have moved on to sustainable business models, such as promoting the tax on greenhouse gases or investing in green energy sources that transition from oil.
Another thing to keep in mind is that you can diversify your green investments to mitigate risks. For example, if you’re worried that one stock won’t be able to maintain its past performance, you can invest in several green technologies or green technologies from various countries. Instead of investing only in the solar energy field, you can invest in solar, wind, and green transportation at once, or you can invest in green technology companies in North America, Europe, and China. The idea is that through diversification, you reduce the risk associated with owning stocks, and if one market suffers a hit, your entire portfolio won’t be affected.
Learn to spot greenwashing and make educated decisions
Investors love green businesses, and sometimes businesses use this to their advantage. Wanting to obtain a good reputation and attract investments, businesses can sometimes resort to the unethical practice called greenwashing – a form of marketing where a brand calls itself green without actual proof. Companies that engage in greenwashing use terms like “organic,” “natural,” and “green” liberally, but their claims are unsubstantiated, and their practices have a high environmental impact. Apart from fooling customers with false and vague information, these businesses are risky for investors because once the word gets out that they’re really not green (and it usually does!), a public scandal emerges, and their reputation suffers a huge hit.
Famous companies like Volkswagen, Nestle, AJM Packaging Corporation, and LEI Electronics have been accused of greenwashing. Still, if large corporations have the funds to recover from these scandals and redeem their reputation, most businesses tank entirely, and investors lose their money. To prevent this from happening to you, always check that a company is green before investing in them.
