Sustainable Investing Is More Than Solar and Wind Energy
- Renewable energy outperformed during Trump’s first administration.
- Most investors still equate sustainable investing with renewable energy.
- Sustainable investing is more than just owning solar panels and windmills.
On Earth Day, sustainable investing is facing headwinds amid the backlash against environmental, social and governance strategies and as the Trump administration champions fossil-fuel energy at the expense of renewable energy. Morningstar noted that U.S. sustainable ETFs saw a second year of outflows in 2024 as well.
Yet, a look back at how renewable energy performed under both President Donald Trump’s first administration and former President Joe Biden’s term shows that a macroeconomic policy may not necessarily affect returns.
For example, a January research note from investment firm Cambridge Associates shows that the WilderHill Clean Energy Index outperformed the S&P 500 Energy Index by 516 percentage points during Trump’s first presidency, only to underperform by 247 percentage points during the Biden era.
Sustainable ETFs Go Beyond Solar and Wind
Most investors still equate sustainable investing with renewable energy, but Peter Krull, director of sustainable investing at Earth Equity Advisors, said sustainable investing is more than just owning solar panels and windmills.
“There’s a necessity for clean energy and for this energy transition in general to really take off. But we need to diversify when it comes to this topic,” he said.
For the past two years, Krull has placed greater emphasis on infrastructure and its subsectors as he builds core-satellite sustainable portfolios. The impacts of Hurricane Helene on Asheville, North Carolina, solidified his approach.
Choose Index or Active ETFS for Sustainable Exposure
There are three index-based ETFs he uses on this theme. The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund ETF (GRID), a global fund which he said is a well-diversified ETF holding securities that will accelerate the move away from fossil fuels as much as possible, as it holds semiconductor companies, utilities and electrical construction firms.
Another holding is Global X U.S. Infrastructure Development ETF (PAVE), which he said is unique as it’s an infrastructure fund without any fossil-fuel pipelines.
His third idea is a water ETF, the Invesco Water Resources ETF (PHO), a U.S.-focused fund owning companies that make products that conserve and purify water.
He also puts real estate in the sustainability theme and uses the Vert Global Sustainable Real Estate ETF (VGSR), an actively managed fund that seeks companies with commitments to sustainability and also takes into account the potential climate impacts on the assets it holds.
Incorporating Sustainability in Client Portfolios
Krull said taking a bolted-on thematic approach to a core portfolio helps clients see the sustainability side of the investment can be diversified beyond renewable energy.
“A lot of times, if you talk about this, people are like, ‘We'd love to invest that way. But, you know, solar hasn't done anything,’” he said. “This is more about … how can we actually create a diversified portfolio that is sustainable but that isn't just focused on highly volatile clean-energy stocks.”
