Sustainable and ESG Investing: Long-Term Strategies for Socially Responsible Traders

Sustainable and ESG (Environmental, Social, and Governance) investing is vital for conserving and improving environmental problems such as deforestation, loss of access to drinking water, climate change mitigation, biodiversity loss, waste reduction and recycling, air and water pollution, and sustainable agriculture.

Socially responsible investors understand that the way we use resources such as fossil fuels, and other mineral resources today is not sustainable. We need to find better ways to grow our economies and reduce environmental footprint. With technological advancements, it is possible to reverse the ill-effect humans have on the environment.

Energy

Investing in clean energy is one of the major ways that you can help the environment. However, it should be mentioned that many view investing in clean energy not as some kind of charity, but a very sensible thing to do. Due to technological advancements, the price of solar panels has dropped dramatically, and the price keeps dropping. At some point, fossil fuels will become pointless to extract.

There are various reasons why solar panels are becoming more and more affordable, let’s discuss the major topics:

Solar technology has significantly improved over the years and it’s projected to keep improving.
Economies of scale help companies produce with reduced expenditure per unit. Mass production drives prices down drastically.
A growing number of manufacturing companies are joining the competition to produce better solar panels. This competition has driven manufacturers to innovate, improve efficiency, and lower prices to gain a competitive edge.
Many governments all across the world are incentivizing individuals and companies to use solar panels by offering tax cuts, and feed-in tariffs, which make solar installations more affordable for consumers and businesses.
Manufacturing processes have become highly automated and efficient. Enhanced automation, better quality control, and improved production techniques also contribute to cost savings.
We are living in an information age and more and more people are aware of the benefits that come with energy independence. Increased demand makes the industry more attractive for investors. In turn, increased investments help make panels even more affordable.
The Chinese role in making solar energy affordable is enormous. Chinese companies are the major producers and exporters of solar panels. It should also be mentioned that trade routes are becoming more and more efficient and more and more economic areas are connected by free trade agreements.

Investing in clean energy is often viewed as very similar to investing in disruptive technologies. Disruptive sectors can offer exciting opportunities, but they also come with inherent risks. In the case of clean energy, it’s not the question about if, it’s a question of when. We know the disruption is coming.

While the fossil fuels industry is very strong, its dominance is declining every year. Major companies such as ExxonMobil, BP and Royal Dutch Shell are feeling the pressure on the stock markets.

On the other hand, it should be mentioned that Green companies are strongly dependent on government subsidies and have long-term contracts, fixing the price at which energy is sold. The major threats to the green transition are high inflation, global instability and rising interest rates. Transition to take place rapidly either outstanding breakthrough in green technology needs to happen, or investors need to invest heavily. Otherwise the transition can be a slow process.

Investing in solar energy

Some solar panel manufacturers such as Tesla are highly involved in related industries such as creating batteries and electric cars. Sun doesn’t shine at night, and the electricity consumption is at maximum at night hours. One of the major challenges the solar industry faces is saving this extra energy efficiently. Battery technology is advancing every year. Batteries are getting cheaper, longer lasting, and can hold more energy. Here are the companies types to consider investing in when looking for ways to invest in solar:

Solar panel manufacturers
Powerwall (batteries for home) manufacturers
Solar Inverter Manufacturers
Solar Installers and Developers
Solar-Related Technology Companies, such as electric vehicle (EV) manufacturers.
Solar ETFs (Exchange Traded Funds)

Investing in wind and dam energy

Investing in wind and hydropower (dam) energy can be a sensible investment. Dams in particular are known to have a long operating life. And demand on electricity is increasing every year. If you are looking for investing in wind and hydropower, here are some companies to consider:

Wind Energy Companies
Wind Energy ETFs
Renewable Energy Yieldcos are companies that include wind energy assets in their portfolio
Some green energy projects are funded by green bonds.
Hydropower operator company stocks
Hydropower ETFs
Hydropower developer companies

Investing in waste recycling companies

Investing in waste recycling companies presents profitable opportunities while addressing environmental concerns. You can invest in companies that recycle plastic from the environment, old electronics, and so on. In addition, it should be mentioned that new recycling companies are emerging. For example, as electric cars are coming of age, their batteries need to be replaced, and people see investment opportunities in battery recycling.

The biggest electric vehicle adopting countries are China, EU, and the United States of America. As electric vehicle adoption continues to rise, battery recycling is expected to play an increasingly significant role in conserving resources and reducing the environmental impact of battery waste. Therefore, investing in this sector aligns with both environmental and financial goals.

Investing in Electric Vehicles

Most people agree that electric cars are the future. However, many believe that Electric Vehicles (EVs) are not ready yet. The main reason is that creating batteries for EVs requires minerals such as cobalt and recycling companies are not yet fully established. Mining cobalt in particular in the Democratic Republic of Congo is associated with environmental and social issues, including deforestation, child labour, soil contamination, and water pollution.

On the other hand, many companies such as Samsung, Panasonic, and Tesla, are working hard to develop cobalt free batteries. It’s worth noting that some of these cobalt free batteries are already in the market. Toyota is working on sodium ion batteries as well. While it’s true that building EVs today is not cost-free in terms of environmental impact, EVs are becoming greener every year.

It should be noted that the rise of EV sales year after year is a significant trend in the automotive industry, reflecting the growing popularity of EVs and the shift towards cleaner and more sustainable transportation options.

Investing in batteries

Investing in batteries is a sensible decision, however, many investors are unsure where to start. Battery technology is often changing and new minerals are added to the mix. For example, today lithium ion batteries are dominant, and many companies are heavily invested in lithium mining, however, as already mentioned, Toyota and other manufacturers are working on sodium batteries. There are also studies on solid state batteries that do not use lithium. We also have research on graphene, and iron-air batteries. It’s difficult to predict which technology will be the winner ultimately. However, you can invest in battery research companies as well.

To sum everything up

In summary, sustainable and ESG investing is vital for addressing environmental issues, driven by technological advances. Clean energy, particularly solar power, has become more affordable due to technology and scale, disrupting the fossil fuels industry. Transitioning to cleaner energy sources is inevitable, but green companies face challenges. Battery technology investment is crucial for electric cars and renewable energy storage, with ongoing efforts to make them eco-friendly. The consistent growth of electric vehicle sales reflects a shift towards sustainability, making battery and clean energy investments prudent choices in the evolving energy landscape.