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April 21, 2015

Investing in a Green Future

By Luke S.

Just as many people choose their preferred financial institution on the basis of ethical policies and financial performance, so the advent of global warming has caused some investors to rethink their portfolio to ensure it reflects both sound investments and environmental sustainability. For this reason, the green energy sector has attracted a great deal of interest, with commentators monitoring and reporting on trends in renewable energy investment across the globe. Here are a few of the key green energy factors that are influencing contemporary investment decisions.

Why consider investing in green energy?

As fossil fuels from coal, oil and gas continue to dwindle, governments and industry leaders are continually looking for alternative energy sources. Meanwhile, economic experts are monitoring the level of investment that is attracted to green power and noting from where this originates. For example, in 2013, for the first time China invested more in renewable energy than Europe, and in 2014, Japan increased its investment in renewable energy by 80 percent.

The high level of interest is not surprising, given that current power sources have a finite lifespan. Once energy stocks are exhausted, the world will be dependent on renewables, and for this reason alone, anyone with a stake in successful future power sources could potentially do extremely well, knowing all the while that they have helped these alternative green energy industries to grow and thrive.

A recent United Nations report confirmed the global dependence on fossil fuels as well as the adverse effect they are having on the environment. In order to avoid continued damage, renewable energy needs to triple in production by 2050 and become the frontrunner in power production.

Which investments?

Renewable energy spans a number of different industries, including deriving power from solar, wind and hydro sources. Big investors in green power include major power companies currently involved in fossil fuels. As well as continuing to produce carbon based energy, they are also backing renewable energy projects worldwide as a safeguard for the future and searching for alternatives to halt the adverse effect that processing fossil fuels has had on the environment.

Besides the major players, there are also plenty of small and medium sized businesses in the green energy arena. These companies may deliver heat pump services, develop combined heat and power technology, process fuel or research and develop wave technology, to name just a few options.

For example in 2014, solar energy infrastructure virtually exploded, with faster growth in that one year than in the previous 30 years put together. Domestic and business purchases of solar energy were partly responsible, particularly because deregulated energy practices allowed many governments and states to implement and subsidize green energy policies.

How to invest

In terms of how to invest, expert advice is recommended, not least because this is relatively new territory and it is difficult to second guess which type of energy is likely to become the market leader. To achieve the rate of growth required, there are options including purchasing stocks and shares, bonds via banks and also investing pension funds as well as schemes for institutional investors.

Bonds offer an easy to use vehicle for independent investors as well as large corporations and businesses. In terms of stocks, in one of his articles in TheStreet, author Todd Bliman highlights the different options that stock investors have when it comes to global warming. Bliman suggestsinvestors should be mindful of the content of policies when selecting potential schemes to back, as these can impact upon stocks.

Potential risks and benefits

Bliman focuses on the policies governments might enact to combat climate change that might, in turn, affect firms' profits; examples include solar and wind power subsidies, carbon emission taxes and levies on air travel. Balancing potential impact and the opportunities and risks that may arise can be tricky.

The social and economic benefits from investment in green infrastructure are considerable – for example, improved quality of air in the environment in urban areas reduces the need for and the costs of power consumption for cooling and heating homes and businesses. In the same way, interventions can reduce flood risk, encouraging land and house prices to increase while insurance premiums decrease. When quality of life is improved, healthcare costs are reduced.

In summary, investing in a green future is a winning strategy, provided that informed expert advice is taken. Such an investment is a risky gamble if it is not. To get sound advice, seek out advisers who know the market and know investment, preferably independent companies who will offer objective advice.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle
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