For the next 17 days, Good With Money is running an alternative advent, based on the UN Sustainable Development Goals. Each day until December 24, we will feature one expert, talking about one investment that can help to meet one UN SDG. For our first post, Bruce Davis of Abundance Investment, a Good Egg business, talks about investing to meet the “Affordable and Clean Energy” goal.
The UN Sustainable Development Goals (SDGs) are perhaps the most comprehensive attempt to give real purpose and direction to our economy and more importantly the way finance shapes that economy.
We account and pay for the effects of our wasteful use of non-renewable and polluting sources of energy in terms of the change in our climate towards a warmer, more volatile and violent environment. The SDGs set out a very clear set of objectives to mitigate those future costs and risks. Affordable and clean energy should be central, therefore, to any investment portfolio that seeks to give real and meaningful purpose to its profit.
The good news is that sources of clean energy are reducing in cost all the time, as innovation and economies of scale start to take effect. This causes challenges for investors because there are many competing technologies that aim to capture the value of a clean energy future so the best solution is to back a range of projects and solutions rather than put all your money behind a particular technology. The reality is that future energy markets will be more diverse and more competitive than the relatively monopolistic and cumbersome fossil fuel energy markets that preceded them.
For me there are three ways you can invest in creating a future of affordable and clean energy:
- The first is to look at your existing investments which are in conventional equity and bond funds and find out just how exposed you are to the old world of energy. Obviously some of the ‘big’ energy companies are embracing change more than others. You want to bet on the energy equivalent of Facebook not Kodak.
- The second is to target investments in companies which make the sustainable development goals part of their own corporate strategy. Unilever is a great example of this with the bulk of their growth coming from brands that offer an ethical alternative in the market. In energy this means targeting companies which want to disrupt the status quo. Such companies are risky, often led by visionary and polarizing individuals (such as Musk at Tesla) but there is no doubt that your money will be supporting the goals even if the ride is a bit of a rollercoaster in terms of risk.
- The final push in my view should be towards ‘uncorrelated’ assets such as decentralized energy projects. You should look at the risks of each one carefully, and spread your money across a portfolio of projects and technologies (obviously I have an interest and my own investments focused in this area through my role at Abundance), but they do offer returns which are based on fundamentals rather than market sentiments.
Want to know which impact funds really have a positive impact? Read the Good Investment Review, from 3D Investing and Good With Money