Is Investing in Green Technologies Wise in 2022?
Is a good question and perhaps in part the affirmative answer relies on geography. The estimates of investments in green technologies vary greatly because there is no agreed-upon definition of what constitutes a “green” technology. Renewable energy sources like solar, wind, and hydro-power are frequently referred to as “green,” despite the fact that they all have diverse effects on the environment. Even if they do cut carbon emissions, it is less certain whether nuclear power or more efficient combustion engines can be labeled “green tech.”
By any standard, the amount of money invested in “climate tech” or green technology rises yearly. According to BloombergNEF analysis, the overall investment in low-carbon technology will reach $755 billion in 2021. While an increase of 25% over the prior year, this amount is still roughly one-third of what is required to completely eradicate net carbon emissions by 2050.
The importance of the global transition to renewable energy – aka green energy – is the green ‘tech’ most frequently stressed in the news. That holds true even when oil prices and oil stock prices rise as a result of geopolitical unrest and ongoing supply and demand disruptions caused by the coronavirus outbreak.
However, using the iShares Global Clean Energy ETF as a proxy, clean energy stock prices are still around 20% below their late-2021 highs. So individual investors may feel that adding these stocks to their portfolio might not be a great idea.
For long-term investors, though, that might present an opportunity that should not be overlooked. This is especially true here in South Africa, as we are actually starting to lead the way on a global scale in this often exciting, emerging tech. Here’s a closer look at why that is.
Is Investing in Green Technologies Wise in 2022?
The Trend Seems to Be Here to Stay
Most sensible individual smaller investors are looking for long-term investments that will help them build steady wealth. Chasing hot trends – cryptocurrencies and NFTs come to mind here – is not always the best way to do that. However, if you choose to look at green tech as a ‘trend’ experts say, and the actions of many businesses seem to demonstrate, that it is one that is here to stay.
You will hear this from every carbon-based energy provider: the energy landscape is shifting. Some companies, such as BP, Shell, and TotalEnergies in Europe, are attempting to shift as well by acquiring and constructing sustainable energy assets using the revenue flows from oil and natural gas.
Even US-based goliaths like ExxonMobil and Chevron are talking more about sustainable energy, albeit they aren’t quite as far advanced in the transition process as their European counterparts.
But it’s not just green energy that counts as green tech, as we’ll explain, and across a huge range of industries the commitment to going green is there, it’s just not perhaps moving as quickly as some investors expected.
Is Investing in Green Technologies Wise in 2022?
Sometimes Excitement is a Bad Thing
It’s important to keep in mind the decline in renewable energy stock shares in context. A bad habit of Wall Street is going too far with a good narrative and getting too excited, too fast. In terms of clean energy, that’s very much what happened, and it was time for a cooling-off phase.
This is nothing new in the world of global investments. Returns and profitability decline when a lot of players try to cash in on a popular trend, then the returns that formerly hot enterprises provide fall short of expectations. Investors sell their stock, it seems like the ‘trend’ is dying’.
Numerous conservative energy industry players have essentially been issuing warnings about this tendency for years. If you are careful, you can still find strong dividend payers in the clean energy sphere and in other green tech investments with the wherewithal to get through this rough patch.
Is Investing in Green Technologies Wise in 2022?
If You Take the Time to Learn, Your Green Tech Investments Will Thrive
Investors who are thinking about investing in green technology would do well to take the time to learn a little bit about the history of this industry, as well as the principles that underpin this quickly expanding subject. These aims include
Source Reduction
By altering manufacturing and consumption habits, source reduction aims to reduce waste and pollution.
Sustainability
Sustainability is an endeavour to satisfy societal requirements using practices that won’t harm or deplete natural resources in the process of being used forever in the future.
Innovation: The goal is to create technologies that are less damaging to the environment.
Cradle-to-cradle design
This entails making things that can be recycled or reused, stopping the cycle of manufactured goods from cradle to grave.
Viability
The goal is to establish an economic activity hub that concentrates on environmentally friendly products and technologies, accelerating the implementation of such technology and product concepts.
Investors will discover that there are many green technology subsectors that currently provide top-notch investment prospects. They consist of:
Energy: The green energy industry focuses on the creation of alternative fuels because it is frequently thought of as the most urgent issue in the green technology sector.
Green Nanotechnology: This entails the nanoscale manipulation of various materials, which has the potential to revolutionize the production of goods.
Green chemistry: This includes the creation, development, and use of chemical products and processes that are intended to do away with or drastically cut down on the production and use of hazardous compounds.
Is Investing in Green Technologies Wise in 2022?
So Should I Invest in Green Technologies in 2022?
Investors in green technology should concentrate on spotting opportunities that not only fit their personal and environmental values but also offer the best financial returns. As smaller, prosperous private companies expand and list on markets, new IPOs may also outperform prospects.
Investing in any new technology as well as unproven and developing businesses have risks. Any effective investment strategy needs diversification. You should secure your money while diversifying your portfolio by making investments in several green industries. While leaving the active stock selection to experts, managed exchange-traded funds (ETFs) and mutual funds can also be profitable investments.
Remember that it can be simple to fall victim to a practice known as “greenwashing,” in which a business or service makes claims to be environmentally friendly but is not.
Before deciding whether to provide financial support to a specific company, take the time to conduct thorough research and comprehend the underlying principles of the technology that is being produced. Asking questions is the best way to find out whether a company’s environmental practices and technology are genuine or just greenwashing.
Finally, getting help from a financial advisor is always a good idea. As we mentioned earlier. South Africa is actually becoming a leader in green tech, and so there are potentially local and offshore investments to consider, investments that a financial advisor can help you find, learn about and invest in.
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