One of the questions facing investors and money managers is whether to invest in low-carbon energy vehicles or stick with what worked for them before. With climate-change debates at the federal level and an uncertain future, investors might be tempted to keep sustainable energy companies out of their portfolios. However, despite politics, renewable energy is gaining ground technologically and financially; the investments exist thanks to innovators dedicated to sustainability. This means options are available for responsible investors who want social and financial returns.
The U.S. Climate Action Center The United Nations Climate Change Conference was held November in Bonn, Germany. While the United States still has an official presence until the year 2020, the Trump Administration pulled our country out of the Paris Climate Agreement in favor of reviving the coal sector and promoting the use of coal, nuclear energy and natural gas. Despite the withdrawal, dozens of leaders in local, tribal and state governments as well as businesses took part in the conference.
The goal of the U.S. Climate Action Center was to contribute to discussions and demonstrate commitment to the Paris accord from individuals and organizations within the U.S., despite the country’s official position. The movement, led by California governor Jerry Brown and former New York mayor Michael Bloomberg, has participated in and scheduled events to discuss solutions for renewable energy and emissions cuts. Fourteen U.S. states, including California and New York, are on track to meet the U.S. target for greenhouse gas emission reductions of 26 to 28% set by the Obama administration, and play a part in reducing the global temperature by 2 degrees Celsius. To accomplish this goal, all these players need all the innovation and investments they can get.
Sustainable Technology The move toward renewable energy involves improving and developing technologies to allow alternative power sources to become more efficient, cheaper, cleaner and more accessible. While policy isn’t the main driver in the development of technology, it certainly helps. Last year, Congress extended solar and wind investment and production tax credits for five years, and mechanisms such as carbon taxes also may inspire growth and change in the sector. Think of renewable energy technology like computer technology: They’re growing in similar ways, and thanks to greater returns to scale, virtuous circles, and network effects because of increased participation, sustainable investments stand to grow.
While there still is demand for oil, coal and natural gas, renewable alternatives will reduce that demand as prices fall and they become more available. Generating solar power already costs 60% less than it did in 2009, and could drop even more by 2025; a 40 to 60% drop would make it the cheapest form of energy available. The cost of making lithium-ion batteries to store renewable power for solar power technology and electric cars has fallen below $350 per kilowatt-hour, and could fall below $100 in the next 10 years. With 60% of 2016’s utility-scale electricity generation coming from wind and solar resources, it’s becoming clearer that the transition away from fossil fuels is going to happen — it’s just a matter of when.
Socially Responsible Investing While the political landscape around renewable energy may be intimidating, it’s important for investors to keep their focus on long-term goals. Any transition in the marketplace will have short-term market swings, but these don’t necessarily impede progress or growth. The risks exist, but so do the opportunities for investing in good causes and becoming a shareholder activist. The renewable energy market is growing, and with growth comes money; sustainable investment vehicles have comparable market returns to traditional ones, so there aren’t many compelling reasons to stay away.
If you’re an investor who’s interested in socially conscious investing, homework is essential to make sure you’re putting your money in the right places for your environmental commitments as well as your financial goals. Look into ongoing reports from a fund or manager on what kinds of sustainable investments a vehicle has. Consider how you’ll diversify your portfolio to protect your investments from short-term fluctuations and other risks. Are you interested in pure-play sustainable energy stocks, or are you looking for companies interested in social and corporate governance concerns as well? Have you considered companies taking actions to reduce their own carbon footprints, and have they been transparent about their efforts?
A portfolio manager may be a big help to environmentally-conscious investors. Portfolio managers actively looking out for funds can seek out young companies, as well as industries investors might not have considered. Solar, wind and battery power are obvious choices, but that doesn’t mean trash-to-energy firms, metal recyclers, sustainable transportation and efficiency solutions aren’t parts of a sustainable energy future as well. Portfolio managers can help inexperienced investors anticipate and react to potential volatilities in the sector in response to a changing world. They’ll also work within an investor’s timeline and other financial preferences, and be mindful of what an investment’s contents really contain. Portfolio managers can help investors avoid companies that don’t present themselves and their green measures authentically; they provide a third-party perspective on what “green” really means, to save investors from making decisions that don’t align with their goals and values.
Invest Responsibly With Falcons Rock Impact Investments Sustainable technologies and ideas can power the world and empower investors as well. Companies and governments locally and around the world are stepping up to make necessary changes for a responsible future. You can help them through conscientious investing decisions and demand for alternative energy sources and capital markets. Falcons Rock Impact Investments not only can help you manage the portfolio that lines up with your financial goals, but help you meet sustainability goals and play your part in a future powered by renewable energy. You won’t need to worry about where your money is going or what you’re supporting when you invest with us. Learn more about our impact investing process and get started today.