Will 2021 be remembered as a year were the world changed to a different place? Are we going eco-friendly or do we head towards self-destruction? I don’t know, but if you want to maybe profit from it financially, here are some ideas.
DISCLAIMER: I’m not a financial advisor, this is just my personal opinion, please don’t use this as investing advice. Please think before you invest your hard-earned money.
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Why Eco-friendly might be a thing in 2021 and onwards
So, Joe Biden became President of the United States of America and agree or not, the USA is still an economical leader in the world. Joe Biden took action towards a more eco-friendly USA on day one of his presidency he joined the Paris climate agreement, canceled the Keystone pipeline project, and made comments about tackling the “climate change in a way we haven’t done so far”
Moving on Joe Biden plans to set up a climate plan worth 2$ trillion to prioritize green action.
A cry for survival comes from the planet itself” — Joe Biden
Biden signs series of orders, recommits US to Paris climate accord | DW | 20.01.2021
US President Joe Biden signed 15 executive orders on Wednesday, soon after entering the White House following his…
Additionally to Biden, also former President Barack Obama supports this strategy and can be cited with:
If there’s one thing we know after the last four years, it’s that America’s example matters — especially if we hope to heal our planet.
A New Day For America
In his inaugural address, President Biden said this is a time for boldness, for there is so much to do. He’s right. And…
Now, these are just two major examples that eco-friendly change is a strong trend in 2021 and on. There are many more, still, the Fridays for future movement is not gone, Greta Thunberg has a stage in the 2021 world economical forum not in Davos. There are many more signs that tackling climate change will be and has to be the task for the 21st century.
The question for investors should now be, how to participate in the change and gain some profits — though the concept of profits might be questionable in a sustainable economy, that is on a different page.
What to look for
So, what are the possibilities? The easiest group of profiteers might be those companies that create renewable energy and the machines to produces this energy, wind turbines, solar panels, hydrogen companies, etc. Also, there are those companies that create eco-friendly goods, EVs, sustainable clothes, organic and vegan food.
That brings us to companies that help to drive this change, consultancies that focus on helping to adapt to more eco-friendly living and companies.
Now don’t forget those communities that also have plans on how to change their community, they might be the first ones that need funding to pay for their change. This might be an opportunity to invest in debt securities of these communities, like for example California.
Last but not least there are other profiteers, the whole housing, and construction sector might see a rise for those companies that enable green buildings, with low CO2 food-print. Starting with construction companies for new buildings that are more eco, going on with companies that supply building material like CLT (cross-laminated timber) and intelligent building components. One of the largest drivers in the real estate sector are companies that remodel buildings to new eco-friendly modern housings. The greatest gain in bringing the CO2 balance back is to not generate CO2 by building new stuff, but by optimizing and recycle existing stuff and foremost buildings.
Now how to invest
Investing in the first sort of companies might be tricky. Buying stocks from Tesla, Vestas, Nordex, Ballard might be a guess, but also a high risk. Those stocks rose in the last few months by roughly 100%, Tesla did way more. If you do have a large amount to invest going broad on these stocks might be an opportunity. For most this is not ideal and also the maybe overheated market adds additional problems.
Now for the average person an Index Fund, or maybe a managed fund might be the better option. There are many ETFs out there that invest in clean energy or renewable energy, but most are based on the same companies. Look into their holdings and ask yourself, do you want to invest in Tesla stocks, which did an unreal rise in 2020.
Also investing in NASDAQ ETFs might be a consideration since there are many companies listed that move towards ESG factors. iShares has launched ESG screened ETFs in 2020, which are based on S&P MidCap 400, 500, and SmallCap 600. These are an option, though you have to consider that environmentally friendly is just one part of ESG.
There are some ETFs that focus on water-related companies, they are based on the S&P Global Water index. Does water have to do something with environmental factors? Well, yes and no. Yes, because we’ll need things like water-based energy, clean drinking water, and building water handling structured due to rising sea levels. But also no, since building waterways or water treatment does not necessarily have to be environmentally friendly. The S&P index has a reasonable diversification with 50 listings. Hence, it might be worth considering an investment into an ETF based on the Global water index.
Going for those who need money to invest and want to invest sustainably, it might be a good idea to mix some bonds into your portfolio. In today’s markets, bonds are not that profitable, since interest rates are low, but volatility is low as well. The JSS Sustainable Bond is an example of a managed fund in this area. Though managed funds are more expensive, it might be a considerable alternative in the ESG bond market.
Last but not least there are many managed funds investing with a focus on environmentally friendly stocks. If you want to invest in one of these, you have to study them deeply. Some are just greenwashing, some are way too expensive and some are not well managed. An analysis of the market of managed environmental friendly focus is an article of its own.
A point that we do not have covered on how to invest in ESG focused real estate. You can always do it yourself, by looking for direct real estate investments or by flipping homes to be more environmentally friendly. I like to suppose that this is not a thing for a private investor, except you know what you do.
Now, most private portfolios should not invest directly into real estate, since it would be a large concentration risk. Therefore, a fund focused on environmentally friendly real estate would be a good choice. Following the news, there is a strong trend towards ESG in the real estate industry.
When it comes to environmental factors, there is great potential. According to GRESB, 40% of worldwide greenhouse gas emissions are related to the broader real estate sector.
Comprehensive Carbon Footprinting in Real Estate
Developing a truly representative carbon footprint for the real estate sector has been something of a challenge for the…
Though many are following the trend, for a private investor it is difficult to find a fund that is focused on environmentally friendly real estate investments. REITs like the Hannon Armstrong Sustainable Infrastructure are traded like a tech stock, but at last, they are real estate investment — roughly 200% in 2 years sound very weird.
If you can find one, let me know in the comments.
What do you think about the opportunity in environmentally friendly investments in 2021 and ongoing? Do you invest in ESG funds?