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Investing in companies as a retail investor can be an effective way to help your money grow. One of the hottest sectors now available for investing in is cleantech. What is this area and what are the benefits and drawbacks to investing in it? Here’s a look.
What is Cleantech?
Cleantech is a blanket term used in reference to any companies that center around technological products and services that aim to better the environment. This umbrella term covers high growth industries including, but not limited to:
- Solar energy
- Wind energy
- Water purification technologies
- Biofuels
Cleantech can also cover everything from technology that helps with environmental sustainability including energy generation, efficiency, storage, and infrastructure, to transportation, agriculture, and recycling and waste management.
The term ‘cleantech’ was first coined in the American financial sector during the late 1990s following the collapse of the tech boom. At this time, venture capital investors were seeking the next technological trend and set their sights on environmentally-friendly technologies, calling the sector ‘cleantech’.
Are all cleantech companies socially responsible?
Today, there’s some dispute over what actually belongs under the term ‘cleantech’. Some people stretch the expression to refer to anything that potentially reduces the negative environmental impact of a company. This includes traditional industries. This can be seen with the use of the terms “clean coal” and “clean energy” when referring to newer technologies involved in the coal and natural gas industries. Environmentalists question whether this is an appropriate wording for these sectors, however, as these two are known to have a negative environmental impact.
Generally speaking, at its heart, ‘cleantech’ refers to companies that sell renewable energy sources, green technology, newer recycling systems, and other environmentally-friendly processes. This promotes better sustainability globally.
How popular is cleantech?
At the time of this writing, the sector is experiencing considerable attention from investors. This sector has grown to receive the third largest amount of venture capital investment behind only IT and the biotech sector.
Green Technology vs Cleantech
Greentech and cleantech are often used interchangeably. Both of these terms refer to the business and investment sectors that revolve around environmentally sustainable energy products and services. Some people argue the two terms have different meanings, however.
Some say ‘greentech’ refers to new advancements made by companies in areas like alternative fuels and nanotechnology. The ‘green’ here refers to the fact that these new developments will make investors money, whereas in the past, these companies may have failed. Others say ‘greentech’ refers to so-called ‘end-of-pipe’ technology that has been plugged in the past, such as smokestack scrubbers, in response to government regulations.
In contrast, cleantech refers to technology that gets at the root of environmental problems and uses novel approaches to fix them.
The Benefits of Investing in the Cleantech Sector
Part of the drive to invest in this sector rests in feeling you’re supporting a better future for the world. When you invest in cleantech companies, you are:
- Helping move the globe towards a more sustainable future
- Helping drive transformative growth
- Encouraging the use and development of technologies that reduce the impact industries have on our air, water, land, and global climate
When investing in cleantech, you can also be at the forefront of disruptive innovation. This could present huge opportunities for growth. It’s important to know that the global market for cleantech is predicted to grow to a value of $2.5 trillion by the end of 2022.
The risks of investing in cleantech
As with any investment, there is risk involved when investing in cleantech companies. Many elements of cleantech aren’t yet adopted in full by the mainstream. In reality, it’s unknown exactly which will be successful over the long term. Cleantech is still in its beginnings. This means how reliable new technology can be and what it will cost to develop and run continue to be main concerns. Investing in cleantech takes much research and a leap of faith that the company or sector you’ve chosen will perform well in the future.
The Role of Environmental, Social, and Governance (ESG)
It goes without saying that investors want to place their money in companies that will perform well financially. This being said, they are also increasingly considering other factors when making their investment decisions. Many people are now considering what environmental impact a company is making, for example. Investors also want to know how socially responsible a company is, and how it’s being governed.
Investors are taking non-financial ESG factors into consideration when deciding which companies they want to support and help grow.
The environmental impact of cleantech
Yes, cleantech can help the environment! And the impact of cleantech can be considerable.
It can be argued that companies who use “clean energy” labels in order to better the image of their nonrenewable energies are not having a significant positive impact on the environment, however.
Areas of Growth in Cleantech
This article isn’t intended to promote investing in one company over another, of course. Some areas of cleantech are seeing significant growth, however. For example, at the time of this writing, Australia is leading the world in solar panel use per capita, followed by Japan, Germany, and the UAE.
In addition, significant markets are expected to open up in Africa by 2050. Africa’s population is expected to double by that time, creating the need for billions of people to be connected to the internet.
At present, well over 800 million people on the continent don’t have internet access. The African telecommunications market is connected to cleantech opportunities as a lot of the efficiency and reliability of cleantech technologies relies on smart technology that allows users to monitor systems remotely and make adjustments when necessary.
By investing early in cleantech, you can help support the digital divide and accelerate the adoption of disruptive innovations.
The Future of Cleantech
It’s impossible to predict the future of any sector with absolute clarity when it comes to investing. The cleantech sector is looking more and more like a good bet, however. With climate crises coming to the forefront, the need to adopt sustainable energy and environmentally-friendly business practices worldwide is increasingly taking center stage. Cleantech offers the chance for disruptive technologies to change the energy landscape and investing early could help you reap significant rewards.
