Investing in Green Technologies: Green Gold or Green Bubble?

Recently, investments in projects that provide an opportunity not only to earn but also have a positive impact on the environment have become increasingly popular. The transition to green investment is considered to be of great importance in the fight against climate change, reducing greenhouse gas emissions, water pollution, deforestation, and sustainable development of the environment.

Is this a stable strategy and can we really measure its results?

Green Rush: Investments in Clean Energy

The development of technology and the increase in demand for green electricity open up new perspectives for investors. To simplify their task in search of truly environmentally useful projects, popularizing the green economy and, as a result, the natural development of financial markets in this direction, so-called green investment funds began to appear. Investment funds, green projects, SMEs, and other companies that are related to environmentally friendly activities are becoming responsible and conscious about climate change.

A green investment fund can be a targeted tool for SME sustainability, companies involved in environmentally-friendly businesses. Different types of green funds have different goals, sources of financing, investment strategies, and organizational structure, but the main thing for all of them is the investment goal, which will guide such a fund and its strategy, aimed, as noted above, on environmentally friendly investment activities.

So, currently, green financing is becoming an integral component of achieving global and national goals of sustainable development and the formation of a green economy. However, there is a risk that instead of a long-term strategy, another bubble will inflate in the industry. The world already had an information technology bubble in 2001 and a financial bubble in 2008. Now, researchers assume that the next one will be connected with alternative energy sources.

Wrong Turn?

Green topics in macroeconomics unite a wide range of scientific papers. It should be noted, though, that despite a common positive and optimistic view of researchers on the development of green financing, there are opponents of such a theory and practice who argue that it is advisable to separate the areas of reform and prioritize the solution of global and local problems. In their opinion, it is necessary to answer first financial and economic challenges, and then move on to climatic and environmental issues and projects.

Despite the particular interest shown by theorists and practitioners around the world (including the structures of the global reformer, national authorities, etc.) in green finance and responsible investment, questions about the relationship of benefits and threats from the global spread of green financing, as well as the effectiveness of its application for solving relevant global problems, timely consideration of the features and assessment of the pace and prospects of greening, remain open.

The main problem is that huge funds are being invested in presumptuous, but blank R&D trials and many scientists fear that this is where the green industry has taken the wrong turn.

The puzzle is why so much money is spent on the search for new technologies, while the existing ones are being ignored?

Is there another way that allows us to seize the moment at a lower cost?

Yes, there is. Instead of comparing innovations with brand-new R&D programs, we should re-examine the hidden potential of those solutions that already exist on the market. For instance, if we apply steam technology to a new green space of opportunity, we may receive significant benefits at a reduced cost. The idea is to use what is available right now and not spend precious resources on finding something new that might or might not be helpful.

We need to understand that even if climate change science becomes more popular and we continue conducting new research, it will not lead to a transformation of the global energy economy. The resources necessary to carry out R&D are huge and would bring many more results if they were spent on real-time solutions.

A transformation will not be obtained in the course of constant attempts to discover new technologies. What we have right now is that the more the understanding of the complexity of changes in the climate system grows, the more uncertainties appear about the effects of green investing. So, perhaps, the industry should shift its focus from research to action.

Remaining Risks for Investors

We should mention the risks associated with investments in clean technologies. Firstly, there are a number of circumstances that may slow down the pace of development of this sector in case of:

• a major economic downturn occurs, governments will be forced to cut their financial support for green energy
• there is a steady decline in fossil energy prices, then support for renewable sources will be too expensive
• current concerns about climate change, especially in the US, lose their edge, this could hit the popularity and relevance of renewable energy.

Secondly, there are risks due to which the return on investments in the green energy sector may decrease:

• reduction of gross profit of participants in the production and commercial chain (as it happened with a shortage of silicon, due to which the production of solar panels had risen in price and, accordingly, their purchase prices had also risen)
• unstable profitability due to changes in regulation, fluctuations in electricity and coal prices or the introduction of green certificates in some markets
• faster than expected growth in coal production and supply, able to lower coal and electricity prices.

To confront these risks, investors need to use various financial instruments, and diversify the production of electricity from renewable sources, developing various technologies in different territories. Investors should also have a detailed understanding of value chains in the field of green energy.

Final Word

Today, the need for environmental policy reform is more obvious than ever. It requires us to force values upon brands and put these lessons at the heart of the new “green” climate movement. There’s no doubt that renewable energy is a long-term investment in new and promising sectors.

For many years, clean technologies have been used very little: they were too expensive to turn from a dream into a reality. And now we see as the industry is oversaturated with funds. But, does it really help it to progress?