Back when Tim Nash was studying economics at Dalhousie University in Halifax, he found himself starting to question what he was being taught. Travel to India showed him what extreme inequality and poverty looked like. And digging into research on climate change made him consider how much environmental responsibility rested on the shoulders of corporations and investors.
But according to his professors, social and environmental issues were “externalities,” falling outside conventional economic calculations. That didn’t sit right with Mr. Nash, who today is a Toronto-based economist, blogger and investment advisor specializing in cleantech investments. He started to ask tough questions in class.
“My economic professors, they kind of shut me down, to be honest,” he says. “I graduated with my BA in economics with way more questions than answers.”
While Mr. Nash may have once felt somewhat alone in his thinking, times are changing, and that is particularly evident in investors’ portfolios. Investing in green or clean energy is no longer just for tree-huggers – instead, it’s going mainstream, with younger investors particularly interested.
A few years ago, when investors heard the words “responsible” or “sustainable,” they tended to tune out, Mr. Nash says, equating those investments with lower financial returns – and not always unreasonably so. Exchange-traded funds incorporating wind and solar power companies with whimsical ticker symbols such as FAN and TAN offered lacklustre returns.
But as global demand for energy continues to rise, more attention is being paid to hydro, wind and solar options. A report by Bloomberg New Energy Finance indicates that by 2030, solar and wind will account for 16 per cent of global generation capacity, up from 3 per cent today. Meanwhile, fossil fuels will see their share of total power generation drop to 46 per cent from 64 per cent.
Mr. Nash’s preferred ETFs these days are the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), which tracks the performance of clean-energy companies, and the Invesco Cleantech ETF (PZD), which offers a broad mix of green technologies including LED lighting, smart grids and batteries, rather than simply focusing on renewable energy generation, which he predicts could run into trouble.
“The price of renewable energy is just falling so quickly. The price of solar panels and wind turbines is dropping, which is great for consumers and for the planet, but is not always so great for those companies,” he explains.
Investors who want “consistent returns without having the volatility of the stock market” might consider green bonds from Montreal-based CoPower, which lends money for clean energy projects, Mr. Nash says.
Canadians who want to invest in green energy will find options harder to come by, given the country’s long love affair with fossil fuels. “I think Canadian investors are so used to investing in mining, oil and gas and pipelines that they struggle when it comes to this energy transition,” Mr. Nash says.
Among the solid Canadian offerings, he says, are the power producers Brookfield Renewable Partners LP, Innergex Renewable Energy Inc. and Boralex Inc.
Joel Clark, chief executive officer and portfolio manager at Toronto-based KJ Harrison Investors, says investors should do their homework before investing. His company’s clients tend to be older, wealthy professionals and business owners, and they are not beating down his door to move their portfolios to clean energy stocks and bonds.
“Our clients are quite interested in the well-being of themselves and the world,” he says. “But they’re more motivated by making sure we meet their objectives, and how we do that is less relevant to them.”
In other words, every investment within a portfolio has to tick the boxes: Does it have a sound business model and quality management? What’s the valuation, and is there opportunity there? If it’s green, that’s just a bonus, Mr. Clark says.
“It’s like dividends. You don’t buy stock just for the dividend alone – it’s got to fit your thesis," he says. "And you have to be able to see that you can make money in it.”
There are other ways to support green companies, he says. “Look at all the people who have bought electric cars and the impact that has had. It’s a win-win,” Mr. Clark says.
“There are so many things you can be doing at the consumer level that would have a bigger impact.”
Indicators of green energy’s rise
A few examples of the emergence of renewable energy around the world:
- In June, the Canada Pension Plan Investment Board announced plans to issue green bonds, or climate bonds, which come with tax incentives.
- In July, Ireland announced plans to divest public funds from fossil fuel companies, ditching its oil, gas and coal assets.
- According to the Responsible Investment Association, mutual fund assets in socially responsible investments rose 34 per cent over the past two years, to $11.1-billion from $8.3-billion.
- U.S. investor Warren Buffett’s subsidiary MidAmerican Energy Co. is aiming to obtain 100 per cent of its electricity from wind power by 2020.
Sources: Tim Nash, The Globe and Mail
Green energy production in Canada
19: Percentage of Canada’s total primary energy needs supplied by renewable energy sources.
60: Percentage of Canada’s electricity supplied by hydroelectric power. Canada is the second-largest producer of hydroelectricity in the world.
3.5: Percentage of Canada’s power supplied by wind.
Source: Natural Resources Canada