Global new investment in renewable energy fell 23% in 2016 from the previous year, according to the 2017 Global Trends in Renewable Energy Investment report by the United Nations Environment Programme (UNEP) and the Frankfurt School. However, the installation of renewable power capacity hit a new all-time record worldwide, suggesting the demand for renewable energy remains strong, despite the drop in investments. Lower costs were partly responsible for the drop in investment, along with a slower pace of financing in China, Japan and certain emerging markets throughout the year. Despite the slowdown, investments remain fairly robust historically; what was once a mere glimpse into the future has indeed now become a reality as developing countries around the world make significant investments in green technology. 

What's Behind Green Technology Investing

Green technology investing, also referred to as clean technology investing, typically involves the selection of investments in companies with sustainable and environmentally friendly practices and products/services. While some clean technologies offer improvements that increase resource productivity and efficiency, others decrease environmental impact. As green technology continues to emerge as a growing force, several strong industry clusters have emerged: water & waste water; energy; advanced materials; agriculture; transportation; energy efficiency; and manufacturing. (See article: Top 10 Green Industries.)

Last year, global green energy investment slipped, following two years of growth, as overall prices dipped and investment in Asia and other emerging countries dropped as much as 30%. Investments in renewables excluding large hydro dipped to $241.6 billion. However, the amount of new capacity installed increased from 127.5 gigawatts in 2015 to a record 138.5 gigawatts in 2016. Combined renewable sources were responsible for 55.3% of all new power generation added worldwide last year, according to the Global Trends report.

In the UK, the government has set aside £24.5 million in funding for the Energy Catalyst, established by the Department of Energy and Climate Change, the Engineering and Physical Sciences Research Council, and Innovate UK. During the first round of funding, 40 different technologies received a share of funding. The Energy Catalyst is open to researchers and businesses from any sector that are able to address energy challenges related to energy cost savings and reduction of carbon emissions. Among the projects funded by the Energy Catalyst is an engine that is capable of operating through the use of landfill emissions, windows that have the capacity to function as solar panels, and the largest battery in Europe. Not only are many of these projects the first of their kind in the UK, but many are also the first of their kinds in the world. (See article: Why You Should Invest In Green Energy Right Now.) 

As political agendas become greener, much of the capital allocation choices of governmental bodies have been driven toward green technology such as those just mentioned, that are geared at the provision of renewable, efficient energy solutions. While government investments represent a significant portion of global investments in green technology, however, venture capital and private equity firms remain top players in this sector.  Lux Capital, for instance, recently announced that it had closed a $350 million fund dedicated to investing in early-stage technology ventures.

Although investments in green technology have virtually exploded in the last few years, such investments are not without challenges. Along with determining which technologies have the potential to be the next big thing, prospective investors must also make their way through the quagmire of regulatory changes often associated with the green technology sector. In spite of those challenges, investors have found that green technology is a good market in which to invest. This is largely due to the fact that costs have continued to decrease, making green technology even more attractive as an investment opportunity. Among the most popular green technology sectors that tend to appeal to investors is solar energy. (See articles: Spotlight On The Solar Industry and Solar Power Gets Some Major Backers (TAN, NYLD).)

Green Technology Investments Abound

Investors who are considering taking the plunge into green technology would do well to take the time to understand a bit of background behind this sector, including the goals that serve as the foundation for this rapidly growing field. Those goals include:

  • Source Reduction: this is the goal of reducing pollution and waste by changing production and consumption patterns.
  • Sustainability: this is an effort to meet societal needs with methods that can continue to be used into the future indefinitely without depleting or damaging natural resources.
  • Innovation: the focus is on developing alternatives to types of technology that have been shown to be harmful to the environment.
  • Cradle-to-cradle design: this involves the creation of products that can be reused or reclaimed, thus ending the cradle-to-grave cycle of manufactured products.
  • Viability:  the aim is to create an economic activity center that focuses on products and technologies that are beneficial to the environment, thus increasing the speed at which such technology and product concepts can be implemented.

Investors will find there are numerous sectors in green technology that currently provide excellent opportunities for investments. They include:

  • Energy:  with energy often being considered the most pressing issue in the green technology sector, the energy sector focuses on the development of alternative fuels.
  • Green Nanotechnology:  this includes the manipulation of various materials at the nanometer level, which could transform the way in which products are manufactured.
  • Green Chemistry: this encompasses the invention, development, and application of chemical processes and products that are designed to eliminate or reduce the generation and use of hazardous substances. 

Planning your Green Tech Investment Strategy

In choosing a sector for green technology investment, focus on finding not only the most lucrative opportunities, but also one that aligns with your own personal and environmental interests.

Ideally, all green tech investments should be considered as good investments, but keep in mind that, as is the case with any other type of investment, there are risks associated with investing in any type of new technology. Diversification is vital to any successful investment strategy. Investing in different green sectors can help you to diversify your portfolio while protecting your funds. (To learn more about a conscientious, green approach to shaping one's portfolio, see article: Go Green With Socially Responsible Investing.)

Keep in mind that it can be easy to fall into a trap known as greenwashing, in which a company or service claims to be green but actually is not. Take the time to do your research and understand the basis of the technology that is being developed before you decide whether to financially back a particular company. The best way to determine whether the environmental practices and technology behind a company are solid, or are simply greenwashing, is to ask questions.

The challenge of investing in green technology is twofold; the objective is to both increase personal wealth, and to at the same time make the world a better place through socially responsible investing. Admittedly, this can be a somewhat daunting task, but taking the time to conduct your research prior to making an investment can help you to select opportunities that will help you to protect your personal wealth, as well as the environment. Remember to consider the investment level that best aligns with your level of financial commitment and goals, while also supporting environmental goals and sustainable practices through the latest technological advances.

The Bottom Line

Investors searching for environmentally responsible, financially sound investments will find abundant opportunities. 

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