News stories have recently noted that goals of supplying all energy from sustainable sources like wind and solar may be nearly impossible to achieve for decades, if ever. And, of course, the whole idea is under attack from Republicans in Congress and the Trump administration, which plans to pull the U.S. out of the Paris Climate Agreement.
So, does that mean sustainable-energy companies are toxic? Should investors stay away?
“No need to be discouraged,” says Kristin Hull, founder and CEO at Nia Impact Advisors, an Oakland, California, firm focused on sustainable investing. “Renewable energy is gaining traction globally, regardless of the current White House opinion. Solar and wind solutions are actually faring well in the market despite Trump tweets or potential policies. Both of these renewable energies are now market ready, clean and affordable options for individuals, businesses and municipalities around the world.”
[See: 7 of the Best Socially Responsible Funds.]
Hull suggests investors also think past obvious choices like wind and solar companies and include firms with positive environmental strategies such as electric-car and battery companies like Tesla (ticker: TSLA), trash-to-energy firms or businesses that collect metal for recycling.
“Zep Solar, producing the attachment pieces for solar panels, is one example of an investment that had incredibly high returns,” she says of the Tesla unit. “Innovative companies working on battery storage, sustainable transportation, for people and things, as well as semiconductors, and other component producers, are poised to do well in the future.”
Also promising are firms addressing battery improvements for storage of electricity from intermittent sources like wind and solar, says David Aaron, co-CEO and chief investment officer of Executive Money Management in New York.
“With wind, solar and geothermal being proven producers of energy, the next ‘step change’ in the economics of sustainable energy is likely to be the proliferation of cost-effective battery storage,” Aaron says.
“Beyond alternative energy, there are many other areas that are plays on efficiency and emissions reduction, such as autonomous and electric vehicles and LED lighting that investors may want to consider,” says Andrew Wetzel, chartered financial analyst, senior vice president and portfolio manager at F.L. Putnam Investment Management Co. in Wellesley, Massachusetts.
Though sustainable energy is catching on around the world, and is still being pushed by some states and many cities in the U.S. despite resistance in Washington, Hull says investors should prepare for the long haul.
“Some of the solution investments will take time to develop, be adapted and scale,” she says.
“New energy technology is no different from the race in computer technology,” Aaron says. “Along the way, there will be many runners, but only one winner in each sector. These venture investments are for those who can afford to take significant losses if their runner does not make it to the finish line.”
While Republican views of climate change may not derail sustainable energy firms in the long run, some experts express caution about the sector’s growing pains.
“Solar, and more recently wind, are hitting a wall due to rapid production expansion and lagging ability to connect to grids,” Wetzel says. “Profitability in the equipment supply chain is deteriorating, making the majority of publicly traded solar and wind companies problematic investments currently.”
[See: 10 Energy ETFs That Will Clear Your Conscience.]
Socially conscious, or environmental, social and governmental investing has proven in recent years that investors need not give up returns to follow their values. Still, sustainable energy investing is best for people with a commitment to the environment, says David Sand, chief impact investment strategist at Community Capital Management in Weston, Florida.
“Sustainable investing is suited for any investor with a conscience for the environment and its conservation,” he says. “Investors should not expect that returns need to be sacrificed.”
He does advise investors conduct thorough research.
“On-going reporting from the fund or manager on the investment’s sustainable benefit is an important component to ensuring a sustainable investment is in fact sustainable,” he says. “The amount in one’s portfolio devoted to sustainability is subjective and depends on the investor and their commitment to ESG investing. We see a mix from new investors allocating smaller percentages to larger investors committing 100 percent.”
Investors who favor mutual fund and exchange-traded funds have to look carefully for pure plays on sustainable energy, as many choices include other social and corporate governance concerns.
“I recommend investing in ETFs if you want to invest in this sector,” says Ryan Hyland, founder of Hyland Financial Planning in Akron, Ohio. “For many of these companies, it is hard to distinguish between companies that will do well and those that will not see growth. I recommend using an ETF as a low-cost way to buy a basket of sustainable stocks.”
He cites the Guggenheim Solar ETF ( TAN), First Trust Nasdaq Clean Edge Green Energy ETF ( QCLN), VanEck Vectors Solar Energy ETF ( KWT) and iShares Global Clean Energy Index Fund ( ICLN).
Many experts, however, think actively managed funds are a better bet since many young companies will fall by the wayside.
“Given that we expect significant volatility in the sustainable energy sector, we believe the most prudent option is to invest in a diversified, actively managed portfolio,” Aaron says. “We believe a portfolio manager can add value in a volatile sector as the portfolio’s exposure to regulatory, political, technological and commodity risks rise and fall.”
Hull says investors committed to sustainable principles are also wise to look beyond a fund’s name.
[See: 7 Socially Responsible ETFs for Investors of All Stripes.]
“There are currently a growing number of ‘green’ or ‘ESG’ labeled products that can be a green bow wrapped around a portfolio, camouflaging the actual company contents inside,” she says. “For example, there are offerings labeled as fossil-fuel free funds that contain some of the large banks, like Wells Fargo or Bank of America, that are actively financing pipelines and other extractive projects.”
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How to Invest in Sustainable Energy in the Trump Era originally appeared on usnews.com
