The FWIW Guide to Cleantech Investing: Sectors to Watch
Clean technology, or cleantech, is a dynamic and rapidly growing market that may be worth more than oil in a few years. Amid all the headlines on funding and stock prices, famous entrepreneurs and politics, it’s sometimes hard to figure out and understand what’s at the core — bringing innovative solutions to problems affecting the environment.
We hope this guide is a useful resource to you as you learn about all the groundbreaking efforts with potential to save the planet. Scroll through the different topics below or click on one you’re interested in learning more about. (Remember, all companies mentioned are used as examples and are not stock recommendations or investing advice.)
Methane Plugging and Capturing
Biodiversity
What is it?
As humans, we rely on the complex workings of interconnected ecosystems for basics like food, clean air and water, raw materials, medicine, and protection from diseases. For example, pollinators like birds, bees, bats, and butterflies participate in the growth of more than 100 crops in the US by carrying pollen from one flower to another. They also affect 35% of the global crop production. Without them, we wouldn’t have coffee or tomatoes or even tequila.
The rich variety of plants and animals in nature is called biodiversity, and when it is disturbed, the impact can be widespread. For example, the population of pollinators has been shrinking due to loss of habitat, pesticides, pollution, and disease. Governments, NGOs, and corporations are now working to protect them because of the vital role they play in food production.
What you should know
More than half of the world’s economic output, or $44 trillion, is dependent on nature, and global executives surveyed by the World Economic Forum placed “biodiversity loss” among the top 3 most severe long-term risks the world faces.
But biodiversity has been largely left out of the investing discussion because it has been hard to quantify; as a result, few investing vehicles effectively value the protection of biodiversity. But that’s changing as innovative solutions are being brought to the table and a wide range of governments, companies, and investors (large and small) are jumping in.
While it is still early days, FWIW readers interested in the birds and the bees should keep an eye on a few new frameworks and investment vehicles that could play a key role in propelling this area forward:
1. The Taskforce on Nature-related Financial Disclosures is developing a management and disclosure framework for companies built around the idea that the loss of natural habitats is a financial risk that both companies and governments need to quantify. Their goal is very close to FWIW’s heart: clear and transparent data and standards.
2. Natural Asset Companies: New York Stock Exchange (NYSE) is launching a new class of publicly-traded assets that will assign value to natural assets like clean water, natural habitats, and the value in not extracting resources from specific environments.
How to invest
The US doesn’t yet have as many funds dedicated to protecting natural resources as Europe, but that could be changing. Two examples are the Newday Ocean Health ETF (AHOY), which invests in companies that are diverting ocean-bound plastic waste, supporting sustainable fisheries, and controlling ocean acidification caused by CO2 emissions — and the IQ Clean Oceans ETF (OCEN), which tracks the IQ CANDRIAM Clean Oceans Index.
You can also put on your biodiversity risk binoculars when looking at any company you are adding to your portfolio. Some may be particularly well-positioned to take advantage of the emerging sector and these new investment vehicles when they come online. Some strategies:
- Look at industries that have taken a proactive interest in protecting biodiversity because it has an impact on their operations. For example, insurance companies are taking a second look at protecting coral reefs, dunes, mangroves, and other natural elements that have previously been barriers to hurricanes and other natural disasters that impact waterfront communities… and the payouts insurance companies have to make.
- Back those who are the backbone for creating solutions to protect biodiversity. For example, satellite companies, like Iridium Communications and Maxar Technologies, don’t just help scientists with conservation through monitoring and mapping — they also help companies looking to better assess risks.
- Check your exposure to companies that contribute to biodiversity loss. Some elements that are already measured can be helpful here. For example, individual firms are already graded on deforestation, a major cause, by the non-profit CDP (see their “Forest” ratings). Many giants have pledged to reduce deforestation in their supply chains as they see it as a financial risk, so a review of their impact reports might be helpful as well.
Innovation can play a key role in identifying solutions and opportunities for values-aligned investors. It is our hope that this glimpse into the (slowly) emerging biodiversity investing world gives you a sense of the power and promise in the space and, if these issues are a priority in your investing strategies, a good place to kick off your research.
Biofuels
What is it?
Fossil fuels like coal, oil, and natural gas are derived from organisms that lived millions of years ago. Renewable biofuels, on the other hand, are made from plants and animals that were recently living, also known as biomass, and are of two types. A conventional biofuel is ethanol made from sugary grains like corn and sugarcane. Advanced biofuels include biodiesel and renewable diesel (made from used vegetable oils, animal fats, and grease) and next-generation cellulosic fuels (made from inedible plant matter, like grass and wood waste).
Throughout history we’ve used biofuels to deal with shortages — going as far back as the late 1830s when ethanol blended with turpentine replaced whale oil as a lighting fuel. It was a popular alternative to gasoline during the World War years, and the 1974 Oil Embargo revived interest in it as well.
What you should know
Countries are turning to biofuels as they seek cleaner energy sources and energy independence. Since they are said to produce anywhere from 19-86% lower lifecycle greenhouse gas emissions, biofuels are blended with petroleum-based transportation fuels for a sustainable alternative. They are part of the road to net-zero emissions by 2050, especially for trucking, shipping, and aviation, where few electric options exist.
Globally, annual demand is set to increase 28% from 2021 to 2026 to reach 186 billion liters. Since biofuels can be more expensive, this is driven mainly by government climate policies and subsidies. For almost two decades the US has had a national program called the Renewable Fuel Standard (RFS), which requires oil refiners to blend billions of gallons of biofuels or buy credits. Governments are also developing targets to promote the use of sustainable aviation fuel; commercial airplanes capable of flying on 100% biofuels are in the works.
One of the drawbacks and moral dilemmas of biofuels is that they require food crops and farmlands to produce. This is particularly difficult during a time of rising food prices. Cellulosic biofuel is expected to solve this issue, but progress is still slow. There’s also deforestation and water consumption worries, and studies that claim the emissions released are much higher than we think.
How to invest
Some large petroleum refiners like Chevron have biofuel units. There are also smaller public companies focused solely on sustainable fuels that could be potential acquisition targets in the future, like Green Plains, Gevo, Global Clean Energy Holdings, Aemetis, and FutureFuel Corp.
Electric Vehicles
What is it?
It’s clear now that the future of automobiles is electric and internal combustion engines will gradually be phased out as countries aim to reduce carbon emissions. You can’t talk about sustainability and technology these days without mentioning the electric car revolution. Globally more electric cars were sold in a single week in 2021 than all of 2012, according to the IEA. More than half of the cars sold in the US by 2030 will be electric vehicles (EV), predicts Bloomberg.
But there’s need for change beyond the car. The transport sector is the biggest contributor of greenhouse gas emissions in the US, and less than 60% of this is attributed to light-duty vehicles (cars, SUVs, small pickups). The rest is from medium and heavy-duty trucks (26%), aircrafts (8%), ships and boats (2%), rail (2%) and buses, motorcycles, pipelines etc. These segments will need their own energy storage technology and charging infrastructure, and as adoption grows, investors can look to the firms innovating and providing these solutions.
The micromobility trend, which includes bicycles, scooters, and other lightweight vehicles with electric motors, including“flying taxis” or eVTOLs (electric vertical takeoff and landing vehicles), are also areas to pay attention to going forward.
What you should know
Although it’s one of the most promising and exciting sectors in the green transition, electric vehicles are not without their controversies and risks. The raw materials used in EV batteries, like cobalt, lithium and nickel, are mined in poorly regulated conditions that put workers’ health and the environment at risk.
Also keep in mind many EV companies have been plagued by delays and don’t have a proven product yet. Make sure to do your research and understand what your risk tolerance level is before backing the newbies.
How to invest
The first place to look for EV stocks is the vehicle manufacturers. Some car companies exclusively focus on electric, like Tesla, Rivian, Polestar, Lucid, and NIO, but other giants like Ford and General Motors are also rapidly expanding their offerings to include more electric and hybrid options. Companies like Vista Outdoor, Niu Technologies, Lyft, Bird, and Harley Davidson are making e-bikes and others like Vision Marine Technologies and Brunswick are making boats.
Those interested in EV manufacturers can also go bigger, literally, with trucks and buses. Semi trucks are expected from US-listed firms Tesla, Paccar, and Nikola. Progress is also being made on the fleets of small and medium trucks that are key to package delivery. For example, Amazon is rolling out the first of what will be 100,000 electric delivery vehicles from Rivian. Walmart, FedEx, and UPS are also electrifying their fleets by striking deals with Canoo, General Motors (BrightDrop), and Arrival, respectively. Arrival and Proterra have sold buses and battery technology to other companies, airports, schools, and local transportation authorities.
Also involved in the EV economy are manufacturers of semiconductors and other components, batteries, minerals and charging infrastructure. Investors seeking to broaden their exposure to EVs can consider individual companies or one of the many ETFs on offer that include them, like the Global X Autonomous & Electric Vehicles ETF (DRIV), KraneShares Electric Vehicles & Future Mobility ETF (KARS), Global X Lithium & Battery Tech ETF (LIT), Amplify Lithium & Battery Technology ETF (BATT) and Fidelity Electric Vehicles and Future Transportation ETF (FDRV).
Food Tech
What is it?
The food system has been under real pressure over the last few years, with prices rising worldwide. The world eats 11 million pounds of food every minute, and agriculture accounts for 25% of greenhouse gas emissions, 80% of deforestation, 70% of water use, and 78% of ocean and freshwater pollution — so there are few areas where your investment decisions can have as much impact.
Significant sustainable food innovation is being driven forward by many small companies aiming to disrupt the traditional agriculture and food sectors. Technology is being used in different ways to improve the efficiency, sustainability, and yields of food growers. This is commonly known as AgTech, or agriculture technology, and includes concepts like drones for monitoring, digital crop trading, seed-planting robots, soil DNA testing, and self-driving tractors.
How to invest
Here’s the good news for individual investors: there are a growing number of public companies and funds in this space that you can consider for your own delicious portfolio.
Several AgTech firms are now traded publicly, like AppHarvest, Hydrofarm Holdings, GrowGeneration, Kalera, Trimble, and AgEagle Aerial Systems; funds that hold many of them include Global X AgTech & Food Innovation ETF (KROP) and VanEck Future of Food ETF (YUMY).
There are also food companies looking to change what’s in your food. Some focus on organic, natural, GMO-free, or antibiotic-free goods, like United Natural Foods, Hain Celestial Group, and Maple Leaf Foods. The mission-focused salad specialist Sweetgreen is working on making fresh food accessible to underserved communities and schools. Makers of plant-based alternatives to animal products, like Beyond Meat and Oatly, claim to deliver benefits to people’s health and the environment.
Finally, it is important to remember the role that major ag companies can play in this space. While much of the innovation is being led by startups, larger players like Mars, Kraft Heinz, Tyson Foods — which has its own plant-based brand, Raised & Rooted — and ADM are driving change as well through investments in and acquisitions of startups. Mention of these companies may throw up red flags to some values-aligned investors, but we would be remiss if we did not include them, as the scale they can bring to the industry is breathtaking. Remember, we are fans of progress in these fields and are reluctant to hold out for perfection.
Since the holdings and focus of individual companies can be difficult for values-aligned investors to wade through, ETFs may be a good option. In addition to the funds listed above, some of the larger funds in the space include: Fidelity Agricultural Productivity (FARMX), iShares MSCI Global Agriculture Producers ETF (VEGI), and First Trust NASDAQ Food and Beverage (FTXG). As always, be sure to look into their holdings and philosophies to ensure they are in line with your values.
Geothermal energy
What is it?
The Earth’s core is actually hotter than the surface of the sun, and this heat is continuously radiated from the planet’s interior to the surface. Known as geothermal energy (literally translates to “earth heat” in Greek), it’s the reason we have stunning natural phenomena like volcanoes, hot springs, geysers, and fumaroles.
This clean, renewable source of energy is available 24/7, regardless of weather or time of day, and is gaining ground (ha!) as we race to transition to green alternatives in the coming decades. It can be converted to electricity, used directly for space heating (as Iceland does for 90% of its homes), or in ground source heat pumps. Geothermal plants could also help source precious minerals like lithium that will be needed to drive the EV revolution.
What you should know
Tapping the earth’s interior for energy convertible to electricity traditionally requires naturally occurring hydrothermal reservoirs. This is hot water trapped underground, close to the earth’s surface, that can be reached with conventional drilling. But the conditions where heat, rock permeability, and water at shallow depths come together are only found within the fearsomely named Ring of Fire in places like Iceland, New Zealand, and California, Alaska, and Hawaii in the US. This is one of the main reasons that large geothermal energy projects have not scaled at the pace of solar, wind, and other renewable sources.
Feasibly unlocking this buried heat from other regions will need better technologies and big investments in Enhanced Geothermal Systems (EGS). These are artificial underground reservoirs made by carefully injecting water into hard, superhot rock. In 2022, the Department of Energy announced it would fund research to reduce the cost of these systems by 90% to $45 per megawatt hour by 2035.
Currently, geothermal energy provides 3.7 gigawatts of electricity in the US, or enough to power 2.7 million homes, but the agency says the US has the potential to affordably power over 65 million homes this way, in addition to widespread deployment of geothermal heating and cooling. The private and public sectors are working on making this a reality with pilot projects and the Energy Earthshot. The Inflation Reduction Act also gave the industry a boost by including tax credits for geothermal production, investments, and heat pump purchases. Across the Atlantic, countries like the Netherlands and Germany are rapidly scaling their installed capacity in the quest for self-sufficiency.
How to invest
Although a lot of the innovation is happening in startups, like the Bill Gates-backed Fervo Energy and MIT spinout Quaise, there are a few ways for retail investors to bet on geothermal technology. It’s important to be careful and aware of the risks while allocating money since the resource isn’t quite mainstream yet.
Some examples of publicly traded firms involved: Ormat Technologies is a pure-play geothermal company that has partnered with the DoE on an EGS project and designs, builds, owns, and operates geothermal power plants around the world. Energy technology giant Baker Hughes provides geothermal solutions and services. AAON produces geothermal heat pumps. Eversource Energy is investing in a geothermal energy pilot program to heat and cool homes and businesses in Framingham, Massachusetts. Chevron’s New Energies unit has a joint venture with Sweden’s Baseload Capital to develop geothermal projects in the US. Schlumberger’s 2010 acquisition, GeothermEx, provides geothermal consulting services.Eco-conscious investors can also target homebuilders. For example, Lennar has invested in and is working with New York-based startup Dandelion Energy.
Green Cooling
What is it?
We need cooling for our homes, schools, office buildings, transportation, and “cold chains” that transport and store vaccines and perishable food. Demand for cooling is growing as the planet overheats, populations grow, and living standards rise in emerging markets. There are an estimated 3.6 billion cooling appliances like refrigerators, freezers, and air conditioners in use globally, and that number is growing by up to 10 devices every second. While 90% of US households already have an AC, the vast majority of people in warmer climate countries like India, South Africa, and Brazil are yet to own one, and installations are expected to climb rapidly.
But cooling systems also contribute to global warming by consuming vast amounts of electricity generated from fossil fuels and leaking potent greenhouse gasses like hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbons (HFCs) into the atmosphere. This leads to greater cooling needs down the road, trapping us in a vicious cycle. Altogether, cooling is said to account for over 7% of global greenhouse gas emissions, and it’s only going to climb higher if we fail to act.
Policies and technology are evolving to support and develop more sustainable methods.
How to invest
If you’re looking to bet on the future of cooling solutions, we’ve identified some of the sectors and companies involved to guide your own research:
- Energy-efficient appliances: Many governments are looking to set higher energy efficiency standards for cooling devices. You can find the makers of the most efficient products out there by checking the US government’s ENERGY STAR certified lists. Some of the public companies selling central air conditioning systems (HVACs) that are ranked at the top include Lennox International, Ingersoll Rand, Johnson Controls), and Carrier, which was one of Goldman Sachs’ energy efficiency stock picks in June 2022. You can also consider component suppliers, like Emerson Electric, which has committed to a science-based, net-zero target across Scopes 1, 2, and 3.
- Smart buildings: A growing number of buildings are being fitted with automation tech to make them more energy efficient, and firms involved in intelligent heating, ventilation, and HVACs stand to benefit. Those interested in passive systems to reduce power needs can take a look at construction companies with energy efficiency claims, like Carlisle Companies and Installed Building Products, or green building funds like The Global X Green Building ETF (GRNR) and The Invesco MSCI Green Building ETF (GBLD).
- Next generation planet-friendly tech: As governments seek to curb the use, production, and leaks of hydrofluorocarbons, companies are aiming to replace it in appliances with natural refrigerants or hydrofluoroolefins (HFOs) that have low global warming potential and are non-ozone-depleting. Honeywell International, The Chemours Company, and The Linde Group are some of the firms producing these safer refrigerants. Other new approaches that may lower cooling emissions are membrane-based ACs, solar-powered ACs, heat pumps, and the cooling-as-a-service business model.
Green Hydrogen
What is it?
Hydrogen is the simplest, lightest and most abundant element in the universe. We use it in industries (petroleum processing, treating metals, producing fertilizers, processing foods) and to power electrical systems. Since it’s almost always attached to another element, it has to be extracted with chemical processes that can damage the environment. A 2019 IEA report said the annual production of hydrogen is responsible for CO2 emissions equivalent to that of the UK and Indonesia combined.
Hydrogen’s climate impact depends on how it’s made. Black hydrogen, also known as brown or gray hydrogen — the dominant type we have today, is derived from fossil fuels in a process that releases carbon emissions.
Green hydrogen is the holy grail for environmentalists and policymakers. It’s made from water and renewable energy and is completely emission-free. Running an electric current through water (electrolysis) splits the hydrogen from oxygen. This hydrogen can be stored for future use in fuel cells and re-electrified whenever required, only emitting water vapor and warm air.
Blue hydrogen is a low-carbon form that involves carbon capture and storage. Gold hydrogen is naturally occurring and trapped underground. Pink/red/purple hydrogen is created with electrolysis of water powered by nuclear energy, and the exciting turquoise hydrogen is still in its infancy.
What you should know
Experts say more reliance on clean hydrogen for the energy we need to drive our economy can help address the toughest third of global greenhouse gas emissions, and many countries, including ours, have adopted this strategy. The IEA says low-emission hydrogen was less than 1% of global hydrogen production in 2021 and needs to cross 50% by 2030 in the net zero scenario.
The strongest end-use case for clean hydrogen is in hard-to-decarbonize areas like long haul freight trucks, maritime shipping, and heavy industry. Bloomberg says five sectors: steel, ammonia, methanol, chemicals, and oil refining will use more clean hydrogen in 2022 than all the world’s 51,000 hydrogen cars combined.
As for the cons, clean hydrogen is expensive. However, more infrastructure, innovation, carbon pricing and subsidies are expected to make it competitive. Also, burning hydrogen — as is planned for hydrogen combustion airplane engines and some ships — may be carbon-free, but it does release some other air pollutants like nitrogen oxides.
How to invest
Companies driving the clean hydrogen revolution stand to benefit from the policy push. You can target the industry broadly through exchange-traded funds like Global X Hydrogen ETF (HYDR), Defiance Next Gen H2 ETF (HDRO), and Direxion Hydrogen ETF (HJEN), or explore some of the themes below.
- Electrolyzers and fuel cells: As the CEO of Plug Power said, electrolyzers are “the building block of green hydrogen” and their global sales are expected to at least quadruple in 2022 from 2021. Hydrogen fuel cells combine hydrogen and oxygen to generate electricity. Besides Plug Power, some other US-listed makers of these clean solutions are Bloom Energy, Cummins, Ballard Power Systems, Fusion Fuel Green, and FuelCell Energy.
- Infrastructure: We need firms that produce, process, store and distribute hydrogen on a large scale. Industrial giant Linde is one example. Air Products owns and operates over 100 hydrogen plants and maintains the world's largest hydrogen distribution network. Goldman Sachs described oilfield services company Baker Hughes as “levered to hydrogen” through its infrastructure, distribution and transportation services.
- Fuel cell electric vehicles (FCEVs): Cars, buses, trucks, forklifts, even ships, can operate on hydrogen fuel cells. Companies betting on this technology include Toyota, Volvo, Hyundai, Volkswagen, and Lightning eMotors.
Methane Plugging and Capturing
What is it?
Pronounced “meh-thane” or “mee-thane,” depending on which side of the Atlantic Ocean you’re on, methane is an odorless, colorless gas found abundantly in nature. Most people have heard of it in relation to cow farts and burps, but it’s truly everywhere — wetlands, landfills, paddy fields, coal mines, volcanoes, vents in the sea floor… Even termite guts are a major source.
Methane is also a greenhouse gas with earth-warming properties that make carbon dioxide look weak. While it only lasts in the atmosphere around a dozen years, compared to CO2’s 300 -1000 year lifetime, it’s 84 times more potent over 20 years.
What you should know
Methane emissions are out of control due to human activity, mainly livestock and the oil and gas supply chain. Official estimates attribute around 30% of global warming since pre-industrial times to methane.
Natural gas is the “cleanest” fossil fuel, but its main ingredient is methane, which is released during extraction, storing, transporting, and burning (one study says from our gas stoves too!). It’s also a byproduct of oil production. According to a major study, the oil and gas industry emits 13 million metric tons of methane a year, which is 60% higher than the EPA’s estimate. Harvard research says the EPA may be off by 50%-90%.
While reaching net-zero carbon is of chief importance, the IPCC has recommended “strong, rapid and sustained reductions” in methane to limit global warming, and the UNEP says it’s the quickest way to slow climate change. Scientists and activists see reducing methane in the oil and gas industry as low-hanging fruit within the climate effort — we already have the technology to reduce waste gas, detect leaks, and plug sources, these fixes are not very expensive (gas captured can be sold to cover costs), and they offer near-immediate benefits. Reducing methane is also likely to produce quicker results than convincing people to give up burgers and steak.
What’s been lagging are policies, strict regulations and corporate disclosures and actions, something the Biden administration is attempting to change. As part of this effort, it announced $1.15 billion for states to plug abandoned oil and gas wells and helped create the Global Methane Pledge.
How to invest
For impact-seekers, there are public companies that capture methane from landfills and turn it into energy like Waste Management, Waste Connections, Casella Waste Systems, and Village Farms International.
There are also firms involved in finding, measuring, and mitigating methane emissions in the oil and gas industry. Most are small businesses and startups, but a 2021 list from Datu Research and the Environmental Defense Fund includes some players with stocks on the public markets like Flowserve, Ametek, Emerson, and Gardner Denver.
Looking to identify those making progress and those lagging? Clean Air Task Force and Ceres have been using data reported to the EPA to track the top methane emitters among US oil and gas producers. Environmentally conscious investors should also stay informed on methane leak reports in the news, company reduction targets, and shareholder proposals.
Nuclear Energy
What is it?
Humankind has been harnessing the energy released when atoms are split for many decades. This process, known as nuclear fission, creates heat, which converts water into steam that turns electric generator turbines. The result is carbon-free power that doesn’t rely on the weather. Today it’s used in many countries, making up a major share of electricity production in a few, like France (70%) and Slovakia (53%).
What you should know
Images of mushroom clouds and radioactive spills are still haunting for many. Fear around nuclear science exists due to its use in weapons and disasters like those at Chernobyl, Three Mile Island, and Fukushima. Germany has closed all but two of its 17 nuclear plants, and other European nations like Belgium, Switzerland, and Spain have similar phase-out policies. Other major concerns with going nuclear include the radioactive waste, risk of cyberattacks, and the copious amounts of water used. It’s also on the expensive side, compared to other renewable energy sources like wind and solar towers.
However, public opinion is starting to shift once again due to elevated energy prices and the growing urgency to reduce carbon emissions. Roadmaps to reach net-zero by 2050 call for increasing use of nuclear power. In 2022, the EU classified nuclear plants as “green” to drive investments to the sector, and President Biden launched a $6 billion effort to rescue nuclear power plants at risk of closing. (The US government also wants you to know The Simpsons got a few things wrong.) The greatest growth in this area is expected in Asia, where most of the reactors under construction are found.
Innovation is also growing as attitudes evolve. A new generation of smaller modular reactors, or SMRs, promise to reduce costs. Startups working on nuclear fusion, which involves merging two atomic nuclei to produce zero-waste energy, have also drawn investor interest. According to Crunchbase, five of the seven largest nuclear investments in the year to August 2022 went to nuclear fusion-focused companies.
How to invest
The science is complicated, and the path forward for nuclear power in the climate transition is not clear. But if you do want to include nuclear power in your sustainable portfolio, remember that certain ESG and sustainability-focused funds may avoid it or allow only a minimum exposure to it because it’s so divisive.
You can buy shares in nuclear reactor operators and owners listed in the US like Exelon, Duke Energy, and Dominion Energy. SMR specialist NuScale also made its stock market debut in 2022.
Investors can also gain exposure through uranium with funds like the Sprott Uranium Miners ETF (URNM), the Global X Uranium ETF (URA), and the VanEck Uranium+Nuclear Energy ETF (NLR) which covers both uranium and the nuclear power industry. As with most mining operations, there are separate ESG concerns with sourcing uranium as well.
(Managing) Plastic Waste
What is it?
Synthetic polymers are in our credit cards, the packaging of our groceries, the plumbing in our buildings, our clothing, toys, and even the oxygen masks in hospitals. In a little more than a century, plastic has transformed almost every aspect of human activity. It's been a remarkably useful, almost miraculous, invention.
But in this short span of time we’ve lost control of the debris. The durable man-made material can take anywhere from 20 years to 1,000 years to decompose, and we have produced, and are still producing, so much of it, it’s clogging and choking the planet.
Every minute one garbage truck worth of plastic enters our oceans. A plastic bag has an average “working life” of 15 minutes and we use 5 trillion a year. Scientists have found microplastics in vegetables, rain drops, the placenta of newborns, and Arctic snow. Plastic also contributes to climate change — its production accounts for about 4-8% of global annual oil consumption, the refining process releases greenhouse gasses, and we burn tons of it every year to dispose of it.
What you should know
You’ve probably noticed recycling symbols on items when you shop. Buyers tend to believe that as long as they separate their garbage there’s no harm to the environment. But the truth is less than 10% of plastic waste generated globally is recycled. The US reportedly recycled just 5% of post-consumer plastic waste last year. The rest goes to incinerators and landfills or enters oceans.
Recycling plastic is complex, not possible for many items like the ubiquitous clamshells, and definitely not economical. Experts say we need to reduce consumption with wide bans on single-use plastics like straws, bags, and utensils.
How to invest and divest
If you’re looking to align your portfolio with a responsible green future you may want to check the plastic footprint of your stocks. Just 20 petrochemical companies are said to be responsible for 55% of the world’s single-use plastic waste. You can also look at top banks and asset managers providing funding to this industry. Further down the supply chain are packaged goods sellers. In 2020, Break Free From Plastic collected 346,494 pieces of plastic waste from 55 countries and identified the biggest polluter brands.
Sustainable investors concerned about the plastic problem can look to companies that are positioned well to both help the environment and benefit from efforts to save it.
- Bioplastic: The market for biodegradable plastic made from renewable materials like corn and sugar is small — it represents just 1% of global plastic production, per AP — but it’s an area to watch. One pioneer is Danimer Scientific, which sells straws and drink stirrers to Starbucks and Dunkin’ Donuts.
- Sustainable packaging: Almost 40% of all plastic produced is used for packaging, so investors can target brands acting responsibly. For example, CVS vowed to reduce virgin plastic in its store-brand packaging by 50% by 2030. Primo Water Corporation claims each of its refillable five-gallon bottles of water saves around 1,500 single-serve bottles from landfills and oceans. Plant-based, recyclable PET bottles with low carbon footprints are also being introduced from the likes of Origin Materials.
- Protect marine life: The Newday Ocean Health ETF (AHOY) invests in firms that combat plastic pollution in oceans, like Tetra Tech, Clean Harbors, and Agilent Technologies.
- Brands using recycled plastic: Big and small brands are including recycled plastic in their materials. For instance, the laces on Allbirds sneakers are made of recycled bottles.
- Plastic recyclers: You can invest in plastic waste management and recycling with companies like Casella Waste Systems and Republic Services.
- Chemical recycling: Big Oil is introducing new advanced recycling technologies and may have the scale and market power to make a real difference. We get that many may be wary of investing along these lines and we recommend doing your research around your specific values and priorities before taking any actions. However, we remain in the “progress not perfection” camp (particularly when so much progress is needed) and we will keep an eye on progress in this area.
Solar Energy
What is it?
The sun is an immense and inexhaustible source of energy essential for human life. For centuries scientists have been developing better ways to harvest this solar energy. Electromagnetic radiation from the sun is converted to electricity and stored in batteries and thermal storage systems. In 2021, almost 4% of all US electricity generation came from solar. The solar electricity-generating capacity in the US reached 21.4 gigawatts (GW), or enough to power 23 million homes a year.
How to invest
Numerous companies have made great strides in the last decade in manufacturing panels and deploying solar in the US and worldwide. Some examples: First Solar , the largest solar company by market cap; Sunrun , a leading solar installer; Enphase , which produces and provides the micro-processors and batteries that solar systems need; and China-based Jinko , the largest solar panel producer in the world.
While there are no solar-exclusive utilities in the US, a number of leading firms have made significant investments in the area, like NextEra Energy , Duke Energy , Clearwater Energy , and Brookfield Renewable .
The next step in this field may well be large solar arrays focused on central towers to create energy even more efficiently and reduce the carbon footprint of industries like concrete production. Intrigued? Check out Heliogen.
There are two US ETFs focused exclusively on solar: the Invesco Solar ETF (TAN), which tracks the MAC Global Solar Energy Index, and the Global X Solar ETF (RAYS), which came to market in September 2021, leaving it with a limited track record. However, there are many “Clean Energy” and “Renewable Energy” ETFs that include significant holdings in solar for you to consider.
Water Tech
What is it?
In many parts of the world droughts have intensified in recent years, wreaking havoc on livelihoods and economies. Scarcity of water has led some to see it as more valuable than gold, and experts are warning it could be the next resource countries could go to war over.
Here in the US, the 2022 January-March period was the seventh-driest start of the year on record and driest on record for California. When dry spells are long, as in the American West, it means billions of dollars of agricultural losses, slashed supply to homes and businesses, lower power generation, and more wildfires. It can also threaten access to basics like safe drinking water and sanitation.
Companies are developing new ways to manage water efficiently — an area that could see positive impact and profits grow as water demand rises in the coming years.
How to invest
In February 2022, Wall Street bank Morgan Stanley named five water-management categories for investors to look at: desalination (there are 16,000 desalination plants operating in 177 countries), smart irrigation, crop/seed science, metering and digital solutions, and vertical farming. The US-listed companies it pointed to were agricultural equipment producers AgCo and Valmont Industries, seed innovators Corteva and Bayer AG, and data management providers Badger Meter, Roper Technologies, Xylem, and Itron. European companies, like Veolia, Suez SA, and Acciona SA, dominate the desalination space (worth studying up on, as it has its own environmental risks), and are available as over-the-counter stocks in the US (here’s what that means).
There are also exciting innovations in the startup world worthy of a futuristic sci-fi novel that will hopefully make its way to public markets soon. For example, BlackRock and Duke Energy-backed Source Global is conjuring water out of thin air and sunlight with hydropanels.
Investors can also bet on this thirst-quenching theme more broadly by buying funds focused on the water industry, like the Invesco Water Resources ETF (PHO), First Trust Water ETF (FIW), Invesco S&P Global Water Index ETF (CGW), and Invesco Global Water ETF (PIO). Water ETFs using ESG screens include the Ecofin Global Water ESG Fund (EBLU) (the company also donates 5% of its net revenues to nonprofit Water.org) and the Global X Clean Water ETF (AQWA). There are also mutual funds like the Calvert Global Water Fund (CFWAX), which tracks the sustainability-focused Calvert Global Water Research Index.
In order to better protect your portfolio and align it with your values, it’s also useful to learn and probe how all of the companies you are investing in are managing water scarcity risks — especially if they depend on large, steady supply like the mining sector — and reducing their impact on water resources in terms of consumption or pollution. Water-related disclosures to the global nonprofit CDP are lagging, but it has a list of 118 top firms addressing water security.
Wind Energy
What is it?
Windmills have been used since ancient times to do things like grind grain and pump water, but their modern equivalents are helping us transition to a greener future. Clean and renewable, the wind’s kinetic energy is captured using wind turbines and then converted to electricity. According to the EIA, total annual US electricity generation from wind increased from about 6 billion kilowatt hours (kWh) in 2000 to about 380 billion kWh in 2021. Last year wind turbines were the source of about 9.2% of total US utility-scale electricity generation.
What you should know
After a decade of explosive growth, new wind development is slowing. Inflation and supply chain woes are hitting renewables just like everything else, with the cost of new-build onshore wind up 7% year-on-year, says Bloomberg. Policy uncertainty and NIMBYism also loom large, especially in the US. Local battles are impeding the construction of new wind farms and the transmission lines needed to bring renewable energy to dense urban areas.
Despite the challenges, there’s plenty of reason to be optimistic about the long-term future of wind energy. First, even with rising costs, building new onshore wind and solar projects still costs about 40% less than new coal and gas-fired power, according to BNEF.
Moreover, the urgency governments are bringing to reducing dependency on fossil fuels continues to drive demand for clean energy. And volatile, high natural-gas prices are giving companies even more incentive to lock in electricity prices through long-term power purchase agreements with solar and wind farms. With all these market forces, you’ll continue to see more wind farms dotting the plains and coastal areas. The International Energy Agency expects new global onshore wind installations to slightly recover and reach almost 80 gigawatts (GW) in 2022. That is enough energy to power about 9.6 billion LED light bulbs.
How to invest
Have those spinning turbines set the wheels in your head in motion? Here are a few ways to invest in the clean energy revolution:
- Equities: Publicly-traded companies in the industry include wind-farm operators, utility companies, turbine manufacturers, and more, including Vestas Wind Systems A/S, General Electric, and Siemens Gamesa Renewable Energy SA. Talk with your financial advisor about which stocks match your goals. And if you want to get familiar with the various industry segments and players, Nasdaq and The Impact Investor each have a good “101.”
- ETFs: Maybe you’d rather diversify your investment by placing your dollars in a basket of shares picked by a fund manager. If that’s the case, consider an exchange-traded fund (ETF). The biggest wind energy ETFs today include First Trust Global Wind Energy ETF (FAN) and Global X Wind Energy ETF (WNDY). Many of the largest ESG and sustainability-focused funds will also give you exposure to the wind energy sector.
- Green bonds: These fixed-income instruments are becoming a popular way to raise funds for large-scale wind energy projects and other renewables. Globally, the green bond market is now worth about $4 trillion, with 2022 sales totaling roughly $276 billion through mid-July. Individual investors can gain access to green bonds through ETFs and mutual funds, like the Calvert Green Bond Fund (CGAFX) and the iShares Global Green Bond ETF (BGRN). Want to know more? We’ve got a good primer on green bonds here.
While you’ve reached the end of our list of cleantech investing sectors to consider, this is a dynamic and changing field. Make sure to check back because we will continue to update this page regularly as clean technology evolves.
** Some of the FWIW team may own stocks in some of the companies mentioned. To learn more about who we are, how we roll and how we value transparency, check out “Our Values.”
