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FEATURE ARTICLE - WINTER 2010
Investing in Green Energy
You can invest in green businesses working to increase US renewable energy generation and energy efficiency.
During World War II,
millions of Americans—
a staggering 65 percent of all households—bought Victory Bonds to support the US role in the war. The ten-year bonds raised roughly $185 billion for the war effort (about $2 trillion in today’s dollars), and everyone who bought one received a return on their investment of three percent, if held to maturity.
Green America is working to create the same kind of investment vehicle—a Clean Energy Victory Bond—to support the US fight to curb the climate crisis. These bonds would allow individuals to invest in the rapid deployment of renewable and energy efficiency projects, with a fixed rate of return—and with the full backing of the US government.
“With the world already feeling the effects of climate change, it’s vital that we use every possible avenue to finance green-energy solutions,” says Green America executive director Alisa Gravitz. “Clean Energy Victory Bonds would allow anyone with a savings account to help put new renewable projects on the ground, with just $25 to $1,000.” Clean Energy Victory Bonds aren’t yet available in the US, but Green America is working with White House and Hill staffers to include them in climate legislation.
In the meantime, if you’d like to put your investment dollars to work for a cooler planet, there are several avenues available right now.
Why Invest in Green Energy?
Climate change is affecting the market in significant ways. Since the consequences of business as usual will be catastrophic, many experts say that high-carbon technologies like dirty coal and low-mileage cars are becoming less attractive to investors.
Technologies that both meet consumer demand and address the climate crisis are increasingly being seen as the next big area of economic growth, even in the current depressed economy, says Todd Larsen, Green America’s director of corporate responsibility.
Jackson Robinson, president and chief investment officer of Winslow Management Company, concurs. “At Winslow, we’ve experienced a very significant increase in interest in past couple of years in investments that support long-term environmental sustainability—specifically investments in green energy and energy efficiency,” he says. “Investors from both the progressive community focused on environmental improvement and from the mainstream are seeing immense opportunities available in this rapidly growing market.”
With institutional investors and governments getting behind “clean tech,” investing in renewable and efficiency technologies may be a smart financial decision as well as a necessity for a healthy planet.
Indexes and Index-Tracking ETFs
If you enjoy picking individual stocks, on your own or with the help of a financial advisor, you can invest directly in clean-tech company stocks.
Stock indexes make a great starting point for ideas on picking individual stocks that fit certain criteria—and there are some indexes that focus specifically on tracking companies involved directly in renewable energy or energy efficiency. While you can’t purchase an index, there are exchange traded funds (ETFs) available that are based directly on clean-tech indexes:
• The WilderHill Clean Energy Index (ticker symbol: ECO) tracks companies directly involved in clean energy. These technologies include renewable energy harvesting or production, energy conversion, energy storage, pollution prevention, improving efficiency, power delivery, energy conservation, and monitoring information.
Market capitalization for the majority of the stocks in this index are generally $200 million and above, although the index does include a handful of stocks from some smaller companies with a market cap of $50 to $200 million. —The Powershares WilderHill Clean Energy Portfolio (PBW) is an ETF based on this index.
• The WilderHill New Energy Global innovation Index (NEX) tracks companies involved in clean tech that are traded primarily outside the US. Market capitalization for the majority of the stocks in this index is generally $200 million and above, although it includes some smaller companies with a market cap of $50 to $200 million. —The Powershares Global Clean Energy Portfolio (PBD) is an ETF based on this index.
• The NASDAQ Clean Edge Green Energy Index (CELS) tracks stocks in the clean-energy sector. The companies included are involved in renewable energy generation, renewable fuels, energy storage and conversion, energy intelligence (e.g. smart-grid technologies), and advanced materials (i.e. materials that enable renewable technologies or reduce the need for petroleum-based materials). Companies included must have a market capitalization of $150 million or more. —The First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) is an ETF based on this index.
• The NASDAQ OMX Clean Edge Global Wind Energy Index (QWND) includes companies that are primarily involved in wind energy manufacture, development, distribution, installation, and use. Companies included must have a minimum market capitalization of $100 million. —The PowerShares Global Wind Energy Portfolio (PWND) is an ETF based on this index.
• The NASDAQ OMX Clean Edge Smart Grid Infrastructure Index (QGRD) tracks companies involved in the smart-grid and electric infrastructure sector. Companies in this index will be significantly involved in electric meters, devices, and networks; energy storage and management; and smart grid software. Companies included must have a market capitalization of at least $100 million. —The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) is an ETF based on this index.
Many of the companies included in these indexes are “pure plays,” meaning they are primarily involved in the clean technologies that provide the focus for each index. However, the wind and grid indexes may also include some multinational companies that don’t focus primarily on clean tech, but have a significant investment in this sector.
It’s important for those involved in socially responsible investing (SRI) to note that stocks in these indexes are not screened for social or environmental concerns—and therefore, any ETFs that mirror these indexes won’t be, either.
“[Clean Edge indexes] are going to look like SRI indexes—especially CELS. But we don’t do negative screening,” says Ron Pernick, co-founder and managing director of Clean Edge. “For example, in our wind index, we think it’s important to cover GE in wind energy—they’re a huge player, with billions invested in wind. But they also invest in nuclear and other technologies that could be problematic from a pure SRI perspective.”
Clean Tech Mutual Funds
While there are not yet any index mutual funds that mirror the clean-tech indexes mentioned above, there are some funds that have a specific focus on clean tech:
• The Calvert Global Alternative Energy Fund (CGAEX) is an international fund that puts at least 80 percent of its net assets in stocks of US and non-US companies of all sizes that are wholly or significantly involved in the green energy sector.
• The New Alternatives Fund (NALFX) aims to invest 25 percent or more of its assets in renewable energy and energy efficiency companies of all sizes, domestic and international. It also invests in companies of all sizes involved with recycling, clean air and water, and conservation.
• Pax World’s Global Green Fund invests in US and global companies of all sizes “that help mitigate the environmental impacts of commerce.” In addition to investing in green energy and energy efficiency companies, the fund includes businesses involved in water treatment, pollution control, waste technology, and resource management.
• The Winslow Green Growth Fund and the Winslow Green Solutions Fund have a slightly broader focus than the two mutual funds mentioned above. Both invest in companies “that are providing solutions to environmental challenges,” including those involved in green energy, energy efficiency, green transportation, and green building.
The Green Growth Fund focuses mainly on small-cap domestic companies with attractive growth potential, while the Green Solutions Fund largely includes small- and medium-cap domestic and international companies.
A Word of Caution
Remember, when you invest in stock shares, mutual funds, or ETFs, your principal isn’t protected, and you could lose it. In addition to seeking the advice of a financial advisor, do your research on stocks, and ask for and read a prospectus before investing in a mutual fund or ETF, to ensure it meets your financial, social, and environmental goals.
That said, many investment professionals, including Winslow’s Jack Robinson, continue to be optimistic about the outlook for high-quality clean tech companies.
“We believe all investors will want to have some amount of clean energy exposure in the years to come,” says Robinson.
—Tracy Fernandez Rysavy
What is an ETF?
Like index mutual funds, exchange-traded funds (ETFs) are baskets of diversified securities—i.e. stocks, bonds, and other financial instruments—that mirror a given stock index. However, unlike index fund investing, where you buy and sell shares only at the closing price of each business day, you can buy or sell ETF shares throughout the day like individual stocks. For more information on ETFs, see our article, “Exchange Traded Funds.”