Investing in green, renewable energy will be a win for the planet, which should also make it a win for financial portfolios.
Renewable energy is expected to provide 42% of the energy mix in the United States by 2050.
As the climate crisis gets worse and the powerful weather events and natural disasters continue to dominate the news, people want to back the technology and innovation that will provide relief to climate change. In addition, investors are considering environmental, social, and governance (ESG) factors when making decisions about their investments.
What to invest in isn’t as straightforward a decision as it first appears, though. Renewable energy generated without producing greenhouse gases could have detrimental effects on the communities where they are located. Certain solar farm installations have come under criticism in rural areas for co-opting open space and aren’t considered socially responsible by the people who are impacted by the choice of location. Hydroelectric facilities that require flooding or damming waterways can harm wildlife in the area and may require clearing trees and vegetation, which means greenhouse emitting construction activity. Investors need to do their due diligence to be sure an investment meets the goals they value.
There are benefits to investing in renewable energy. The investments may be more stable, since they are typically infrastructure projects and essential services, like utilities. State and local governments are setting goals for decarbonization, resulting in the potential for more renewable energy projects where companies can be involved and investors will benefit. The federal government is providing funds to small businesses that are working on innovative solutions to clean energy technology.
An investment area garnering more attention lately is green hydrogen, an energy carrier that can be used in a variety of applications. It is a key part of the process of decarbonizing the traditionally difficult sectors to decarbonize including steel manufacturing, shipping, and aviation. It is considered green hydrogen if it is produced using electricity produced by renewable energy sources. The companies that produce green hydrogen need to step up the pace of production and research to solve the issues of storage of the volatile gas, and that means they need more capital.
We mentioned the increased scrutiny of ESG concerns by investors, and this is a positive trend. However, due to the difficulties in quantifying DEI and social responsibility, as well as the lack of transparency and standards for reporting progress in those areas, investors can more easily investigate the renewable energy pledges made by companies and their actual efforts to make good on the pledges. While we believe in creating a more just and equitable world in all areas, the renewables sector is needed to save the planet, increase positive health outcomes for areas currently dealing with pollution, create family-supporting jobs while generating revenue for investors. Even with the current lack of reporting standards, investment in renewables is a good response to the urgency of the climate crisis.