Best climate change stocks and how to invest

What are climate change stocks?

Climate change stocks are companies that are involved in environmentally friendly practices. They promote the adoption of clean energy and reduce reliance on greenhouse gases.

You may have witnessed varying degrees of climate change across the world, from rising sea levels in one part of the globe to droughts in another. As a result, there’s been a worldwide movement to create awareness about the state of global warming and the level of carbon emission by governments and institutions alike.

In light of that, there’s been different markets that tackle the climate crisis issue. You can find companies invested in addressing climate change through creating green technology as well as electric vehicles, solar and renewable energy. While they may sound like the same thing, they’re totally different economies.

Here’s a difference between renewable energy stocks, and companies with green initiatives:

Renewable energy stocks

Renewable energy relates to more environmentally friendly power options that’ll serve as a substitute to the widely used natural gases that pose a threat to our climate. These energy solutions can be harnessed from natural resources such as the sun, wind, or water – which means it’s more sustainable.

Learn more about renewable energy stocks

Green initiatives

Green initiatives involve the use of energy sources that produce zero emissions and reduce the carbon footprint on the environment. While green companies may still be involved in production that emits pollution in small scales, there’s an element of eco-consciousness adopted in their business practices.

Learn more about green energy stocks

There’s great value for companies to heed the call for clean energy. For example, governments will generally support companies with tax credits, incentives and bigger investments if they run environmentally friendly business.

So, because of the enormous state subsidies they could receive, more companies have dropped stopped fossil fuels like coal in their production and replaced them with far less harmful processes to the environment. This provides an opportunity for traders and investors to get exposure to climate change stocks.

Why do people want to invest in climate change stocks?

People invest in climate change stocks for several reasons including:

1. Government support of these type of stocks, ie tax credits, incentives and infrastructure. For instance, United States president Joe Biden has committed $555 billion for clean energy, with several dollars earmarked for incentives to companies that have initiatives to cutting down greenhouse gas emissions.¹ The endorsement by government means that institutions are more likely to seek cleaner energy solutions, which opens up investment opportunities
2. There’s been greater investments in solar, wind, battery storage and hydrogen energy solutions in the last ten years. It’s forecasted that global renewable electricity capacity will rise more than 60% between 2020 and 2026. The number will be equivalent to the current total global power capacity generated from fossil fuels and nuclear combined.² Getting exposure to renewable energy stocks looks set to become the next big investment theme
3. There’s a collective appreciation by governments and institutions of the urgency to shift to clean energy economies to realise a green future. Since the adoption of green energy cannot be instantaneous, due to heavy reliance on natural gases, investing in climate change stocks takes on a long-term dimension. You can get exposure to company stocks while the price is still relatively low and watch your investment grow incrementally over time
4. According to the IPCC's forecast, the global temperatures will increase by at least two degrees Celsius by the year 2100.³ Based on this assessment, investing in climate change stocks is not only provides opportunities for personal enrichment, but is also a commitment to the survival of the human species.

Top 5 climate change stocks

1. SolarEdge Technologies
2. NextEra Energy
3. Brookfield Renewable Partners
4. Enphase Energy
5. Canadian Solar

Note that these companies have not been chosen as the best climate change stocks alone, but rather based on various factors including market cap, future growth prospects and latest results. This list was last updated on 8 April 2022.

SolarEdge Technologies

SolarEdge Technologies develops inverter systems that changed the way power is harvested in solar photovoltaic (PV) installations and sells it. They also s communication devices, smart energy management solution for homes and commercial real estate. There are five divisions in total in which it operates: solar, energy storage, e-mobility, critical power and automation machines.

In Q4 2021, the company reported revenues of $551.9 million, up 5% from the previous quarter and up 54% from the same quarter last year. The record revenue for the quarter was attributed to an increase in demand for solar energy across all segments and geographies globally.⁴

The financial success of fiscal year (FY) 2021 has contributed to SolarEdge’s $18.4 billion market cap as noted in April 2022.

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NextEra Energy

NextEra Energy is one of the biggest solar and wind energy generators in the world. It operates in the electricity utility industry, providing clean energy generating resources such as natural gas pipelines and electricity transmission lines.

NextEra is also part of the few companies to receive the honour of being on the dividend aristocrat list, increasing its annual payout to its shareholders for more than 25 years.

In Q4 2021, NextEra reported adjusted earnings growth of 3.7% year over year (YoY), making $814 million compared to $785 million made in the fourth quarter 2020. The revenue for the quarter was $5 million, up 14.8% YoY. The performance was driven by the increase in average number of customers to nearly 82,000 from the prior-year period.⁵

NextEra Energy has a market cap of $169 billion. At the start of the FY22, there were executive managerial changes to the roster and additions to its backlog of contracts required to meets its expectations for the coming years.⁵

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Brookfield Renewable Partners

Brookfield Renewable Partners owns different renewable power-generating facilities around the world in places like Asia, Europe, North and South America. It operates in the hydroelectric, solar, wind, and energy storage sectors, providing clean power solution.

As one of the few companies that regularly pays dividends, every quarter is crucial to meeting that mandate. In 2021, Brookfield generated FFO (funds from operations) of $934 million, up 10% from 2020 results. The performance was attributed to ‘high-quality, inflation-linked contracted cash flows, organic growth initiatives and contributions from acquisitions’.⁶

Brookfield Renewable Partners has a market cap of $25.7 billion at the time of writing. The company has also invested approximately $4.3 billion across different markets and technology in which it operates to sustain future growth.⁶

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Enphase Energy

Enphase Energy manufactures software and hardware to generate power for home and residential areas. This involves solar power generation, energy storage units, and web-based monitoring and communication functions.

The company is responsible for creating revolutionary technology, microinverter, a device attached to each solar panel that enables you to monitor and make adjustments to each panel to generate maximum power.

In Q4 2021, Enphase Energy reported revenue of $412.7 million, up 55.8% compared to the same period a year-ago in which they posted $264.8 million.⁷ The performance was credited to a strong demand for its microinverter systems.

For FY21, Enphase sales went up 78.5% compared to the previous year’s figures, posing $1.3 billion.⁷ The market cap for Enphase Energy was $26.1 billion at the time of writing.

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Canadian Solar

Canadian Solar designs and manufactures solar panels for sale globally, with several branches located in different continents. The company has also been one of the fastest growing battery storage businesses after it added this division to its operations.

The battery storage solutions business delivered nearly 900 MWh in its first year of launching, and is expected to double that figure in 2022.⁸

In Q4 2021, the company’s revenue went up 47%, reported at $1.53 billion YoY. The performance was driven by a higher solar module average selling price (ASP) lower manufacturing costs and an increase in project sales. ⁸

For FY21, Canadian Solar generated total revenues worth $5.28 billion, up from $3.48 billion reported in 2020.⁹ Its market cap was reported at $2.1 billion at the beginning of April 2022.

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Ways to trade or invest in climate change stocks

Invest with share dealing

You can invest in climate change stocks by opening a share dealing account with us. With share dealing, you’ll take direct ownership of the company shares. As a shareholder, you’ll have voting rights and receive dividend payments if the company grants them.

You can invest in UK shares from just £3 and get exposure to US shares commission-free, plus there’s no charge to open or close your position.⁹ Note that you have to trade three or more times in the previous month to qualify for the best commission rates.9

Since shares are non-leveraged products, you’ll need to pay the full value of the position upfront. As an alternative to investing in shares, you can trade climate change stocks via spread bets or CFDs.

Trade with spread bets

Get exposure to climate change stocks without owning the asset with a spread betting account. You’ll place a bet on an amount of money per point of price movement in the underlying asset by going long or short.

Spread bets are leveraged derivatives, which means you’ll only need a fraction of the full value of the trade to open a position. It’s important to remember that while leverage amplifies your profits, you may lose more money than just the initial deposit. That’s why you always need to take steps to manage your risk.

With spread bets, there’s a minimum commission charge of 0.10% with us. Also, all your profits are tax free.¹⁰ Find out how to spread bet shares to get exposure to over 12,000 international shares. For beginners that may need more information on how to buy shares, we offer educational resources on IG Academy.

Trade with CFDs

With CFDs, you speculate on the difference in price from the point at which the contract is opened to when it’s closed. You won’t own the shares, but you’ll trade the price movements rising or falling and make a profit on an accurate prediction.

You’ll trade CFDs on leverage, opening your position by putting down a margin as your deposit. Note that both your profit and loss will be magnified, because it’ll be calculated based on the full size of the position. Therefore, make sure you use risk management tools to mitigate further losses.

The major difference between CFDs vs share dealing is that since you don’t own the asset outright, you can enjoy certain tax benefits. For example, you can offset any losses against profits for your capital gains tax (CGT) liabilities, which makes CFDs a great way of hedging your position.¹¹

Trading or investing in climate change stocks summed up

• The rise of climate crises has led to the adoption of alternative energy generation sources by companies and governments around the world
• Some companies are involved in renewable energy while others participate in green initiatives to decarbonise power generation
• You can speculate on the best climate change stocks in the UK and US with us by trading or investing
• You can get exposure to climate change stocks without owning them by using a spread betting or CFD trading account
• You’ll use a share dealing account to invest in climate change stocks and own the underlying asset outright

Footnotes

¹ CNBC, 2022
² IEA, 2022
³ IPCC, 2022
⁴ SolarEdge, 2022
⁵ S&P Global, 2022
⁶ Brookfield, 2022
⁷ Yahoo Finance, 2022
⁸ Canadian Solar, 2022
⁹ Trade in your share dealing account three or more times in the previous month to qualify for our best commission rates. Please note published rates are valid up to £25,000 notional value. See our full list of share dealing charges and fees.
¹⁰ Yahoo Finance, 2022
¹¹ Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.