The Complete Guide to Green Energy Stocks and ETFs

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Aja McClanahan is a personal finance writer who has a story of getting out of over $120,000 in debt. She's been featured in Yahoo! Finance, MarketWatch, U.S. News and World Report, Kiplinger and has written for publications like Business Insider, Credit Karma, Inc., and many others. Aja writes about investing and personal finance for Wealthsimple. In her spare time, she manages her own investment portfolios for herself, husband, and two kids. Aja double majored in Spanish and Economics and holds a Bachelor of Arts degree from University of Illinois at Urbana-Champaign.

Green energy stocks and ETFs are growing in popularity because of an increased focus on global mandates calling for governments, corporations and individuals to reduce their carbon footprint. Green and clean energy is becoming big business, and new opportunities to invest in these trends are cropping by the thousands.

Even with excellent growth prospects and tons of buzz surrounding these opportunities, make sure you remained principled in your approach to investing. No matter how many “media darling” stocks you are presented with, you’ll still need to do your research and vet your investments based on your personal financial goals.

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What does it mean to invest in green energy stocks?

Investing in green energy stocks means that you have an ownership interest in a company that focuses on a number of eco-friendly, sustainable technologies and efforts—especially as it pertains to energy. There are tens of thousands of products and services that fall under the umbrella of green energy.

Investments in green energy can be stocks, ETFs, or bonds in companies whose business models revolve around green energy. In some cases, you may consider having an ownership stake directly in a business related to green energy. However, if you don’t have the funds to participate as a direct owner in this capital-intensive industry, investing in green energy securities is the next best thing.

Here are a few examples of green energy products and services you might invest in:

  • Alternative energy: windmills, solar panels, moving green energy, geothermal, hydrogen, etc.

  • Alternative fuel vehicles

  • Related services: consulting, technology, inventions, software, etc.

Why invest in green energy?

You’d invest in green energy for the same reason that you’d invest in other commodities such as oil, soybeans, natural gas, and pork bellies. If you believe in a future where increased demand green technologies supply will put upward pressure on the prices of related products and services (as the cost to deliver them decreases), then you’d invest in green energy stocks.

Growth catalysts for green energy stocks

In the U.S., the Biden Administration is making clean energy a core part of its policy objectives, and many other nations are similarly making it a priority. A proposed $2 trillion infrastructure plan is in the works, and it could substantially boost renewable energy and green tech initiatives worldwide. The demand for clean energy technology is rising and costs to provide it are decreasing, which could mean profits for many companies in the green energy sector.

How do I pick green energy stocks and ETFs?

Understand the financials

You should thoroughly research any investment you plan to make.

One way to do this is to check the historical performance of the stock or ETF you are investing in. Although historical performance doesn’t predict future performance, most stock analysts agree that historical performance is still a helpful reference for analysis. In the case of ETFs, make sure you’re comfortable with the expense ratios (the lower, the better). If you are investing in corporate bonds, check the company’s credit rating along with the bond’s market value, maturity, interest rate, and yield.

As you conduct research, examine documents that help you understand your potential investment in the green energy industry. If you invest in a publicly traded company, you can usually find prospectuses, 10-K filings (annual reports), and other key figures like the P/E ratio, market cap and dividend yield figures. You can then compare the performance of these securities against popular market indexes like the S&P 500 or the total stock market index.

Know the industry risks and opportunities

Within this information, you should see explanations, in plain language, on what the growth opportunities are along with risks faced by the company and industry as a whole.

In the case of green energy stocks, opportunities may be in the form of increased worldwide demand in the near and long term. Risks might be in the form of inexpensive inventions and technology that could bring extreme abundance, and much lower prices, to the green energy supply rather than shortages and higher prices.

Be comfortable with corporate governance standards

You are likely investing in green energy stocks not only because of the promising growth forecasts but also because socially responsible investing is important to you. With this in mind, investing in green energy stocks can still present ethical concerns for investors with certain personal convictions.

For instance, you may find a green energy ETF you like, only to find it also invests in other industries, sectors, or even companies you prefer to avoid.

Or you might discover a green energy ETF that has holdings or affiliates in fossil fuels or companies cited for unethical business practices.

In either case, make sure your ETF holdings and individual stocks align with both your personal convictions and financial objectives.

Green energy stocks and ETFs to consider in 2021

Here’s a list of stocks and ETFs you could explore if you’d like to invest in green energy:

SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)

The S&P 500 Fossil Fuel Free Index aims to track the performance of companies in the S&P 500 Index that are “fossil fuel-free.” This only includes companies that do not own fossil fuel reserves.

Invesco WilderHill Clean Energy ETF (PBW)

This ETF aims to track the performance of the WilderHill Clean Energy Index. This index is composed of publicly traded U.S. companies focused on the advancement of cleaner energy and conservation. These stocks are chosen because they are projected to benefit from a societal transition toward the use of cleaner energy and conservation.

First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)

This ETF is based on an index of clean energy companies. These companies can be engaged in the manufacturing, development, distribution, and installation of clean-energy technologies including, but not limited to, solar photovoltaics, wind power, advanced batteries, fuel cells, and electric vehicles.

iShares Global Clean Energy ETF (ticker: ICLN)

ICLN invests in global clean energy companies—those involved in the biofuels, ethanol, geothermal, hydroelectric, solar, and wind industries. ICLN also includes companies that develop technology and equipment used in these industries.

ALPS Clean Energy ETF (ACES)

Based on the CIBC Atlas Clean Energy Index (ticker symbol NACEX), this fund invests at least 80% of its net assets in securities in the underlying index. The underlying index includes a diverse set of U.S. and Canadian companies involved in the clean energy sector, including renewables and clean technology.

Invesco Solar ETF (TAN)

Based on the MAC Global Solar Energy Index, the fund invests at least 90% of its total assets in the securities from that index. Essentially, this ETF is based on companies in the global solar energy sector.

iShares Global Green Bond ETF (BGRN)

This ETF aims to track the results of the Bloomberg Barclays MSCI Global Green Bond Select (USD Hedged) Index. This index is composed of global investment-grade green bonds that are issued to fund environmental projects.

Bloom Energy (BE)

Bloom Energy is a company that designs, manufactures and sells solid-oxide fuel cell systems for on-site power generation in the United States and other countries. The electrical equipment and parts industry, as a whole, is currently estimated at $4.79 Billion. Bloom Energy totals roughly $3.63 Billion in market capitalization, claiming a large percentage of this market.

Enphase Energy, Inc. (ENPH)

Enphase engages in designing, developing, manufacturing, and selling microinverter systems for the solar photovoltaic industry. Providing residential and commercial solar plus storage solutions, the company has a current market cap of $25.56 billion.

Brookfield Renewable Partners L.P. (BEP)

Brookfield Renewable Partners operates one of the world’s largest publicly traded renewable power platforms. Brookfield is also is a global leader in hydroelectric power and an experienced global owner and operator of and investor in wind, solar, distributed generation, and storage facilities.

How can I buy green energy stocks and ETFs?

Once you have researched and analyzed the stocks and ETFs you are interested in, it’s relatively easy to purchase shares. Here are steps to get you started:

  1. Find a brokerage firm. Online is ideal. Your account can be opened and funded in just a few days once your personal information is verified.

  2. Place an order for the stock according to your investment objectives: Market, limit, stop order or buy stop order are common orders used to buy shares

  3. Wait for confirmation that your order has been received and completed.

  4. Continue to watch the performance of your stocks and ETFs. Make adjustments to your portfolio as needed.

The bottom lines

Investing in green energy stock and ETFs could be an option for hedging your portfolio against losses and inflation. However, as with all investments, there are no guarantees.

Even if there’s a lot of media attention surrounding a company or industry, you are still responsible for completing your own due diligence when considering stocks to buy. As an informed, principled investor, remember to stick to the foundational principles of value investing. With this approach, you should be able to choose the best green energy stocks and ETFs that fit your long-term financial objectives and are within the bounds of your personalized investment plan.

Last Updated September 20, 2021

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