Green investing isn’t particularly straightforward. The use of renewable energy around the world is booming but this doesn’t necessarily mean good investments or returns. The idea might be appealing – but how to play it?
The high-risk option is to try to pick winners from the assortment of renewable energy companies.
Among the renewable or sustainable energy companies there are some with a sound track record – but there are also plenty of others which are in very early stages of development, have unproven technologies or have no earnings or management history.
In other words, at the smaller end, the companies are high-risk investments and not suitable for more than a small part of any share portfolio. A safer bet is to look for the big energy companies that are investing heavily in renewable assets or technologies.
Another less risky option is a managed fund that has exposure to renewable or sustainable energy companies.
Richard Whan, portfolio manager of Melbourne’s Ethical Investment Services, advises that investors approach the renewable energy companies cautiously.
There is strong demand for green investments, he says, but often the reasons are not financial.
He says as part of his role as a financial adviser he often stops clients putting money into companies that sound appealing despite lacking an earnings history, where management doesn’t have a successful track record or that are risky.
"Some might have innovative technology but if they don’t have an operating history or the technology is not proven, they’re speculative investments and I would caution anyone putting in a significant amount of money," he says.
"It is still some years before a carbon scheme is going to be introduced; some of the companies mightn’t survive until then."