Green bonds
By purchasing green bonds, especially when they are first issued, investors can make impactful loans for renewable energy projects, parks and open space, energy-efficient buildings and transportation, sustainable agriculture, and technology that converts heat and waste to energy. The proceeds from the bonds are earmarked for specific environmental or social purposes and they typically offer competitive financial terms.
Environmentally screened stock funds
While there are numerous environmentally focused investment funds, they are not all created equal. Fees, performance, ESG ratings, and manager experience vary greatly. And so do holdings.
Most environmental funds will screen out companies that own large fossil fuel reserves. Many will consider various types of emissions. A smaller subset of funds actively seek stocks with climate-friendly products and services or valuable new technologies in energy efficiency, generation, and storage. Shelton Green Alpha, Kayne Anderson, and Change Finance are good examples.
Fund managers also differ in the degree to which they engage in shareholder activism to pressure company management to improve policies, disclosures and outcomes related to climate change. Calvert is a leader in this area.
Private investments in clean energy infrastructure and forests
Private investments typically involve greater cost and complexity than public investments and generally offer much less liquidity. They are not suitable for every investor and may have large minimum investment amounts. However, they can also potentially offer attractive diversification, yield, total return, and impact.
We believe the highest impact often comes from private investments, particularly when new funds are allocated to projects with specific measurable impact.
One example is NorthSky Capital which creates private funds to invest in renewable power and clean energy infrastructure. Past investments include a landfill project in Tacoma Washington that captured methane gas emissions (a chief contributor to climate change). The methane gas is converted to electricity while greatly reducing harmful emissions. Another project in California similarly captured and converted methane gas emitted from wastewater sludge and food waste.
While NorthSky funds are illiquid and are suitable only for large investors, private offerings from firms such as Greenbacker are much more accessible. This firm develops and operates wind and solar farms across the country, essentially operating much like an electric utility. Since 2016, Greenbacker Capital has invested in hundreds of clean energy projects which together have generated more than 3.3 million megawatt-hours of renewable energy. The firm’s primary investment fund (GREC) has generated relatively stable historical returns and annual distributions in excess of 6%.
The world’s forests protect against climate degradation by absorbing carbon, protecting watersheds, and providing a habitat for plants and animals. Lyme Timber is a long-term leader in land conservation and sustainable timberland. They offer investments in wetland mitigation banks that support healthy streams and wildlife, carbon sequestration projects, and responsible forest management.
To help research and sort through all these options as well as to provide access to the private market opportunities discussed above, many investors rely on the assistance of financial advisors specializing in this field, such as Colorado Capital Management.