Green Investment By Individuals Is Expanding — & Fun!
Published on February 3rd, 2021 | by Carolyn Fortuna
February 3rd, 2021 by Carolyn Fortuna
When I first started writing for CleanTechnica a few years ago, I became immersed in all things renewable, sustainable, and electric. Before I knew it, I had purchased a couple of shares of Tesla. I wasn’t familiar with individual electronic trading, so I let this green investment sit while I worked to grow my retirement portfolio through traditional routes.
Fast forward to 2020, a pandemic that nearly halted employment as we had known it, and new blocks of personal time. I revisited my trading account, navigated their online site, and slowly learned that a small investor like me could gain more control over my savings.
From recent stories in the press, I’m not alone. Take the plummeting cost of renewable energy, add in an increasingly collective awareness of the climate crisis, and — voila! a new force has emerged in the stock market — small investors are redirecting low paying savings account funds into green finance, often with some very positive results.
Socially responsible, or sustainable, green investment has at its core the objective to make the world a better place through zero emissions. Its upward momentum is grounded in increasing consumer demand and the recognition that sustainable funds provide returns comparable to traditional funds. A Morgan Stanley report found that, from January 2020 to June 2020, US-based sustainable equity funds outperformed their traditional peers by a median of 2.8% in terms of total returns and likewise lost 3.9% less during this time of pandemic-induced volatility.
A recent Washington Post article states that investors are looking up and down supply chains and searching not only for established companies but also for innovative ones at early stages of development. “What we’re seeing is that the market has the appetite to accelerate the clean-energy revolution,” said Cathy Zoi, the chief executive of EVgo. “The imperative is to go faster.”
Green Investment from the Pros
If you’re hoping to read this article and get my insights into winning stocks to invest, I hope you’re not disappointed. I’m not a professional investment analyst, and investing is not without risk. But I’ve done okay by devoting due diligence to reading articles about what green investment stocks make long-term sense, viewing trends, and chatting with other small investors about their strategies.
Relatively few US investors report hearing about sustainable investing from a financial professional, family members, friends, or the media. For 24% of US investors, their largest source of investment knowledge comes from their own research. Yet the International Energy Agency estimated in 2019 that global investment in low-carbon energy will have to increase 2½ times by 2030 from its current level of about $620 billion a year to meet targets in the Paris climate agreement.
Private capital has helped to pave the way to meet those targets. Financial firms issued a record $357.5 billion of green and sustainable bonds in the first nine months of 2020, up 96% from the same period in 2019.
Goldman Sachs said a year ago that it would devote $750 billion to clean-energy financing over the next decade, with $115 billion already invested over the last 15 years.
Henry Paulson, a former Goldman chief executive and US treasury secretary, will become executive chairman of a new multibillion-dollar investment fund at the investment firm TPG devoted exclusively to combating climate change.
Prudential Financial became the first insurer to raise money with a green bond offering. Last March it launched a $500 million bond issue devoted to investments that provide environmental benefits, including reduced greenhouse gas emissions and improved resource efficiency.
BlackRock — the world’s largest asset manager, with $8.67 trillion in assets under management as of January 2021 — describes sustainable investing as being about investing in progress and recognizing that companies solving the world’s biggest challenges can be best positioned to grow. “Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself,” BlackRock chief executive Larry Fink remarked in his 2021 annual open letter to investors. He added that he had expected the covid-19 crisis to “divert attention from climate,” but, instead, “just the opposite took place, and the reallocation of capital accelerated even faster than I anticipated.”
From January through November 2020, investors in mutual funds and exchange traded funds invested $8 billion globally in sustainable assets, a 96% over the sum for all of 2019, Fink said. “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity… No issue ranks higher than climate change on our clients’ lists of priorities,” said Fink, whose firm has more than $7 trillion under management. “They ask us about it nearly every day.”
From Green Penny Stocks to Established Clean Energy Companies
Joshua Simpson, financial advisor with Lake Advisory Group, says when he chooses companies for his firm, he has 3 criteria:
- Is the company’s business model focused on sustainability?
- Is it financially sound as to be around long enough to make an impact?
- Is the firm doing something beneficial?
“Oftentimes, it’s not the company that’s going out and trying to completely change the way we do things overnight that makes the biggest impact,” Lake explains. “It’s the ones that do small things that they can make sure that they can do every single day, that they can increase what they do a little bit every year. They’re able to make the biggest impact.”
A small investor like me who is interested in taking only minimal risks with green investment has a range of options to consider.
Hands-on, active portfolio management can involved day trading or ongoing buying and selling. Investors research ESG data as part of an ongoing investment process to gain a fuller understanding of the companies in which they invest.
Sometimes that involves green penny stocks, which are generally low cost, speculative investments that are also typically volatile. Gains can be made very quickly if you pick the right green penny stock. Okay, rarely are these stocks in the actual penny range, but they are on the lower cost side of the market spectrum. Take Eat Beyond, a food tech company that’s focused on plant-based and alternative food products. It has just announced that its OTCPK listed common shares under the symbol EATBF are now eligible for electronic clearing and settlement through the Depository Trust Company (“DTC”) in the US. At this writing, it’s about $3.00 a share. Will it go up or down? We don’t know, do we? But belief in plant-based foods might make this an appealing choice for a small investor.
Many eco-smart index funds are available. These are indices that track the stocks of sustainable companies. An index is a measurement of a specific section of the stock market. These eco-smart index funds specifically meet MSCI ESG Criteria. An MSCI ESG Rating is designed to measure a company’s resilience to long-term, industry material environmental, social and governance (ESG) risks.
Then there are green investments of solid, established clean energy and mobility companies. On his first day in office, President Joe Biden returned the US to the Paris Climate Accord and enacted several environment-related initiatives. He plans to dedicate billions of dollars to create millions of renewable energy jobs in the future. Because of this, many investors are turning to EVs, for example.
Investing in Tesla has always been a rollercoaster ride. Over the past year, however, Tesla’s stock has surged higher and higher all while settling into the prestigious S&P 500. It’s been quite rewarding for retail investors — minting some surprised (and happy) millionaires in the process. Of course, the millionaires are individuals who invested in Tesla early in the company’s entry into the S&P and who stood firm when naysayers were forecasting the demise of the all-electric car company.
Others prefer a legacy carmaker that’s part of a newly proclaimed transition to EVs.
Perhaps you’d like to invest in solar and wind energy. Global corporate funding seems to be headed in those directions. As example, the solar power sector grew by $11.7 billion, or 24%, in 2020 compared to 2019 — despite the coronavirus pandemic. That figures covers a broad range of financing methods — venture capital funding, private equity (VC) funding, debt financing, and public market financing.
Regardless of what — if any — sustainable investing direction you take, it’s no longer just a fad. Green investment is now a viable strategy to build a diversified portfolio that has a good chance of providing returns. And, with people like us focusing on sustainable investments, we will have a lasting impact on a zero emissions world of finance as well as on industries around the world.
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