Investing in Green Technology: The Future Is Now

What Is Green Technology Investing?

Green tech is a group of technologies that seek to reduce or eliminate the negative impacts of human activity on the natural environment. This can include anything from exploring new clean and renewable sources of energy to pioneering new and clean materials and finding ways to recycle waste and used materials.

There are many ways to invest in green technology, from installing wind turbines and solar arrays to supporting electric vehicle research. Both private and government actors can contribute to green technology. Governments invest in green technology by giving subsidies or tax credits to green technology companies, while private individuals can support them by financing green technology enterprises.

Understanding Green Technology Investing

Since there is no universal definition of what makes a technology “green,” estimates of green technology investments vary widely. Renewable energy technologies such as solar, wind, and hydropower are widely considered “green,” even though each of them has different environmental consequences. It’s less clear if nuclear power or more efficient combustion engines can be considered “green tech,” even if they do reduce carbon emissions.

By any definition, investment in green tech or “climate tech” is increasing every year. Total investment in low-carbon technologies reached $1.77 trillion in 2023, according to research by BloombergNEF. That’s a 17% rise over the previous year, but still only about a third of what’s needed to eliminate net carbon emissions by 2050.

Here are some of the other ways businesses and countries are investing in green technology.

Green Technology Industries

In 2023, renewable energy took up the largest share of new investments, with a total of $623 billion worldwide. This category, including wind, solar, and other renewable power sources, saw investment grow by 8% over the previous year.

Investment in green transportation also surged, reaching $634 billion, or 36% more than had been invested the year prior. This was largely thanks to increased electric vehicle sales, along with the associated infrastructure for charging and maintenance. Note that electric vehicles represent about 18% of all cars sold, as of 2023. This gives a signal about the potential opportunity in this market and the energy needed to power it.

These industries were the largest investment recipients in 2023. There were also significant gains in investment for sustainable materials, carbon capture, and energy storage, although these figures were dwarfed by the investment in energy and transportation.

Countries Investing in Green Tech

Following the COP26 conference in Glasgow, many industrial nations set goals to reduce or eliminate carbon emissions by 2050. In order to meet that goal, investment in green technology is rising worldwide, both by governments and private investors.

China saw the largest amount of green tech investment in 2023, as well as the highest growth. About $676 billion were invested in China green tech industries, 38% of the global total for the year.

Investment in the European Union, US and UK combined totaled $737 billion, however, other regions saw comparatively lower rates of investment growth.

Corporate investments in climate-tech companies also increased, reaching $165 billion in 2021. Two-thirds of this figure came from public markets, such as IPOs, SPACs, or other offerings. Venture capitalists and private equity investors contributed only $53 billion, but they tended to focus on more nascent sectors.

Types of Green Technology Investments

Investors who are considering taking the plunge into green technology would do well to take the time to understand a bit of background behind this sector, including the goals that serve as the foundation for this rapidly growing field. Those goals include:

• Source Reduction: This is the goal of reducing pollution and waste by changing production and consumption patterns.
• Sustainability: This is an effort to meet societal needs with methods that can continue to be used into the future indefinitely without depleting or damaging natural resources.
• Innovation: The focus is on developing alternatives to types of technology that are harmful to the environment.
• Cradle-to-cradle design: This involves the creation of products that can be reused or reclaimed, thus ending the cradle-to-grave cycle of manufactured products.
• Viability: The aim is to create an economic activity center that focuses on products and technologies that are beneficial to the environment, thus increasing the speed at which such technology and product concepts can be implemented.

Investors will find there are numerous subsectors in green technology that currently provide excellent opportunities for investments. They include:

• Energy: With energy often being considered the most pressing issue in the green technology sector, the green energy sector focuses on the development of alternative fuels.
• Green Nanotechnology: This includes the manipulation of various materials at the nanometer level, which could transform how products are manufactured.
• Green Chemistry: This encompasses the invention, development, and application of chemical processes and products that are designed to eliminate or reduce the generation and use of hazardous substances. 

Special Considerations

Green tech investors should focus on finding not only the most lucrative opportunities but also those that align with their own personal and environmental interests. New IPOs can also top prospects as many smaller, successful private companies grow and list on exchanges.

There are also risks associated with investing in any new technology as well as unknown and emerging companies. Diversification is vital to any successful investment strategy. Investing in different green sectors can help you to diversify your portfolio while protecting your funds. Managed exchange-traded funds (ETFs) and mutual funds can also be good investments leaving the active stock picking to professionals.

Keep in mind that it can be easy to fall into a trap known as greenwashing, where a company or service claims to be green but actually is not. Take the time to do your research and understand the basis of the technology that is being developed before you decide whether to financially back a particular company. The best way to determine whether the environmental practices and technology behind a company are solid, or are simply greenwashing, is to ask questions.

The Bottom Line

Investors searching for environmentally responsible, financially sound investments will find abundant opportunities. The challenge of investing in green technology is often twofold; the objective is to increase personal wealth and to make the world a better place through socially responsible investing.

Admittedly, this can be a somewhat daunting task, but taking the time to research can help find opportunities to protect your portfolio as well as the environment. Remember to consider the investment level that best aligns with your level of financial commitment, risk tolerance, and goals, while also supporting environmental goals and sustainable practices through the latest technological advances.