It is perhaps little wonder in a world where climate change is such a topic of hot debate, that green investing has become increasingly popular.
The term itself has existed for decades and is used to describe supporting organisations which have strategies and initiatives that places focus on technologies and processes aimed at reducing, or in some cases entirely eliminating, harmful environmental practices.
Increasingly, investors are seeing such ventures as those with the potential for significant growth as the world seeks alternatives to the issues we all face.
These can include new methods of energy production, transportation or broader sustainable practices.
Tesla’s focus on leading the charge in the production of long-range electric vehicles (EVs) is a case in point.
It is also fair to say that companies are alert to the positive impact on their brand by being seen as having green credentials. The trick when considering whether to add them to a portfolio is what their long-term prospects are and just how solid those credentials actually are.
As with other investment opportunities, success is far from guaranteed.
For the investor, the challenge is identifying those with the real potential and ambition to become a significant player over time and deliver the returns anticipated.
And that will include being alert to the wider global shifts in the approach to tackling climate change as nations introduce regulations to help lessen the impact.
A few examples of this include India’s advancement of its carbon market scheme to cut emissions, Australia adopting its first piece of climate legislation in over a decade, and Germany’s approval of a $180 billion program to facilitate clean energy.
By monitoring the change in business incentives being offered globally, investors can determine whether a company has the potential of benefitting as a result.
Certainly the number of options available for investors keen to build a greener portfolio are wider than ever before.
A report from Third Way, Boston Consulting Group & Breakthrough Energy identifies a number of nascent technologies growing at the strongest rate – clean steel, electric vehicles, carbon capture and storage and low-carbon hydrogen – that will together have a cumulative $60 trillion market value by 2050.
In 2021, renewable energy took up the largest share of green investment, with a total of £368 billion invested globally.
Green transportation also saw tremendous growth in 2021, having a total of $273 billion invested worldwide, a 77% increase from 2020. This can be largely attributed to the increased acceptance and adoption of electric vehicles along with the improvements made to the necessary infrastructure required to charge and maintain a network of EVs.
According to BloombergNEF – a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon – the total amount invested in green technologies across the board reached $755 billion in 2021, an increase of 25% over the past year.
It is likely only to increase over the coming years as the world seeks to hit a target of eliminating net carbon emissions by 2050
For many investors, the key is to use your head as much as your heart in terms of where to put your money.
Many firms shout about their green credentials, but, as ever, doing your due diligence is essential to ensuring those you back will grow, deliver a return, while achieving the moral goals you seek to support.
Investors should recognize and accept the risks associated with investing.
Certain investments may require you to keep your holding for periods of many years with limited or no ability to resell unless there is a strongly regulated secondary market.
You may also have limited access to periodic reporting, see your holdings decrease and increase in value, or even lose your entire investment.
Investors should decide for themselves whether to make any investment, basing this on their own independent evaluation after consulting with financial, tax and investment advisors.