Clean Energy Funds Target Growing Demand for Renewable Energy

Renewable energy funds are on the rise, seeking to match profits with a commitment to sustainability. These funds invest not only in generators of solar and wind power and their suppliers, but also in manufacturers of LED light bulbs, electric cars and automobile batteries.

Stock mutual funds and exchange-traded funds (ETFs) are jumping on the bandwagon—from big players like Fidelity Investments and its Select Environment and Alternative Energy Portfolio to smaller ones that have been at it for decades, such as the New Alternatives Fund.

The fact that major companies like Facebook, with its pledge to power global operations with 100 percent renewable energy by 2020, are going in big for renewables sweetens the financial prospect for investors.

Electricity sector leads the way in renewable energy investment

According to the International Energy Agency’s latest market forecast, renewables will continue their expansion in the next five years, covering 40 percent of global energy consumption growth. Their use continues to increase most rapidly in the electricity sector, and will account for almost a third of total world electricity generation in 2023.

As such, large utilities like NextEra Energy and MidAmerican Energy are making huge investments in renewables. James L. Robo, CEO of NextEra Energy, one of the country’s largest power generators, predicted that solar and wind power will be cheaper than coal or nuclear generation by the beginning of the next decade. MidAmerican Energy, the majority of which is owned by billionaire investor Warren Buffet’s holding company, Berkshire Hathaway, has set its sights on getting 100 percent of its electricity from wind power by 2020.

With the recent report by a United Nations scientific panel calling for immediate action to reduce greenhouse gas emissions, demand for renewable energy may continue to surge—and with it investment in renewable technologies.

Renewable funds ease the energy transition, managers say

Managers of green-energy funds argue that individual investments help the energy transition. All else equal, more investors should mean higher stock values for renewable energy companies, which would make it easier for those companies and new ventures to raise money, Edward B. M. Guinness, manager of the Guinness Atkinson Alternative Energy Fund, told The New York Times earlier this month. That should translate to further investment and expansion. “Every piece of investment in the sector matters,” he said.

Further, studies from Morningstar and others have shown that including nonfinancial factors, like environmental performance, in investment management is healthy for overall returns.

Make money and deal with climate change

Lucas White, manager of the GMO Climate Change Fund, targets alternative-energy investments as part of the fund’s energy exposure. “As the costs fell for solar, wind, batteries and storage, our research led us to think that there was a new strategy focused more directly on the solutions side,” White said in an interview in Advisor Perspectives.

The fund's mandate “is to make as much money as possible investing in solutions for dealing with climate change," White said—noting that he expects rising demand for renewable energy to make investments in the sector even more lucrative. "We are trying to figure out how to profit from the activity in this area, which we expect to ramp up considerably.”

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