What Is Green Technology Investing?
Green tech is a group of technologies that seek to reduce or eliminate the negative impacts of human activity on the natural environment. This can include anything from exploring new clean and renewable sources of energy to pioneering new and clean materials and finding ways to recycle waste and used materials.
There are many ways to invest in green technology, from installing wind turbines and solar arrays to supporting electric vehicle research. Both private and government actors can contribute to green technology. Governments invest in green technology by giving subsidies or tax credits to green technology companies, while private individuals can support them by financing green technology enterprises.
- Green technology seeks to reduce or eliminate the harmful environmental effects of human activity on the natural environment.
- Green technology encompasses a wide range of innovations, from renewable energy to sustainable agriculture, materials, and chemistry.
- Both governments and private actors are investing in green technology in different ways.
- Worldwide, green technology investments reached $755 billion in 2021, a sharp rise from the previous year.
- Electric vehicles and energy solutions were the largest sectors in green technology investment.
Understanding Green Technology Investing
Since there is no universal definition of what makes a technology "green," estimates of green technology investments vary widely. Renewable energy technologies such as solar, wind, and hydropower are widely considered "green," even though each of them has different environmental consequences. It's less clear if nuclear power or more efficient combustion engines can be considered "green tech," even if they do reduce carbon emissions.
By any definition, investment in green tech or "climate tech" is increasing every year. Total investment in low-carbon technologies reached $755 billion in 2021, according to research by BloombergNEF. That's a 25% rise over the previous year, but still only about a third of what's needed to eliminate net carbon emissions by 2050.
Here are some of the other ways businesses and countries are investing in green technology.
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Green Technology Industries
In 2021, renewable energy took up the largest share of new investments, with a total of $368 billion worldwide. This category, including wind, solar, and other renewable power sources, saw investment grow by 6.5% over the previous year.
Investment in green transportation also surged, reaching $273 billion, or 77% more than had been invested the year prior. This was largely thanks to increased electric vehicle sales, along with the associated infrastructure for charging and maintenance. Note that electric vehicles represent only under 10% of all circulating cars. This gives a signal about the potential opportunity in this market and the energy needed to power it.
These industries were the largest investment recipients in 2021. There were also significant gains in investment for sustainable materials, carbon capture, and energy storage, although these figures were dwarfed by the investment in energy and transportation.
Countries Investing in Green Tech
Following the COP26 conference in Glasgow, many industrial nations set goals to reduce or eliminate carbon emissions by 2050. In order to meet that goal, investment in green technology is rising worldwide, both by governments and private investors.
The Asia-Pacific region saw the largest amount of green tech investment in 2021, as well as the highest growth. Over $368 billion were invested in Asia-Pacific green tech industries, a 38% increase from 2020. China was by far the largest source of investment, accounting for over two-thirds of the region's total.
Other regions saw comparatively lower rates of investment growth. Investment in the Middle East/North Africa region grew 16%, and in the Americas, it reached 21%.
Corporate investments in climate-tech companies also increased, reaching $165 billion in 2021. Two-thirds of this figure came from public markets, such as IPOs, SPACs, or other offerings. Venture capitalists and private equity investors contributed only $53 billion, but they tended to focus on more nascent sectors.
The amount of money raised by climate tech companies through public markets in 2021.
Types of Green Technology Investments
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 are 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 subsectors 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 green 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 how 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.
Green tech investors should focus on finding not only the most lucrative opportunities but also those that align with their own personal and environmental interests. New IPOs can also top prospects as many smaller, successful private companies grow and list on exchanges.
There are also risks associated with investing in any new technology as well as unknown and emerging companies. Diversification is vital to any successful investment strategy. Investing in different green sectors can help you to diversify your portfolio while protecting your funds. Managed exchange-traded funds (ETFs) and mutual funds can also be good investments leaving the active stock picking to professionals.
Keep in mind that it can be easy to fall into a trap known as greenwashing, where 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.
What Are the Benefits of Green Technology?
Green technology can be used to reduce pollution and waste products of traditional industrial processes. In addition to reducing the negative effects on the natural environment, these technologies can also use resources more efficiently. For example, sustainable agriculture initiatives can prevent the soil damage associated with crop monoculture, and sustainable building materials are less likely to be depleted.
How Can Green Technology Improve the Economy?
Innovation in green technologies can improve human health and increase lifespans, resulting in a net increase in economic productivity. For example, recent research has found fossil fuel pollution to be responsible for about one in every five deaths worldwide, due to the hazards associated with their extraction and air pollution. Replacing fossil fuels with renewable energy would reduce the burdens on the workforce and health sectors, not to mention the benefits of reducing global climate change.
How Much Does the US Invest in Green Technology?
According to research by BloombergNEF, the United States ranked second in the world for green technology investments, with $114 billion invested in 2021. This sum includes both public and private sector investments.
The Bottom Line
Investors searching for environmentally responsible, financially sound investments will find abundant opportunities. The challenge of investing in green technology is often twofold; the objective is to increase personal wealth and to make the world a better place through socially responsible investing.
Admittedly, this can be a somewhat daunting task, but taking the time to research can help find opportunities to protect your portfolio as well as the environment. Remember to consider the investment level that best aligns with your level of financial commitment, risk tolerance, and goals, while also supporting environmental goals and sustainable practices through the latest technological advances.