Earth Day: Our Power, Our Planet

Earth Day was conceived after an oil spill in 1969 raised the attention of activists and has been observed every year since 1970 which saw 20 million Americans participating in various environmental activities.

Each year, Earth Day has a focus topic in a chosen theme. Previous themes have included Trees for Earth, End Plastic Pollution, and Environmental and Climate Education. The theme for Earth Day 2025 is Our Power, Our Planet, which invites everyone to unite behind renewable energy and set the goal of tripling the global generation of renewable energy by 2030. This topic is a crucial component in the movement to decarbonise and aim to keep global average temperature increases to below 2°C.

Our Power, Our Planet

In support of Earth Day’s 2025 theme, we will explore investment in renewable energy and highlight some renewable energy funds. The key forms of renewable energy are:

• Solar energy: Harnessing the sun’s energy through solar cells or thermal systems
• Wind energy: Using the wind to create kinetic energy in turbines and generate electricity
• Hydroelectric energy: Using the flow of water to turn turbines and generate electricity
• Geothermal energy: Extracting heat from the Earth’s core either directly or to generate electricity
• Biomass fuel: Using organic matter as fuel or energy production
• Ocean energy: Using the movement of the ocean in waves or tides to generate electricity

Renewable energy sources are important alternatives to non-renewable energy sources like gas and oil. Non-renewable energy sources are finite and will eventually deplete. With global energy consumption continuing to rise, alternative sources are essential to ensure continuity on energy supply.

The reliance on non-renewable energy sources is also under pressure due to the global need for decarbonisation. Gas, oil, and coal are carbon-based and release greenhouse gases when burned. In our warming environment, reducing carbon emissions is critical to reduce climate change.

Great strides have been made to decarbonise

In 2024, global investment in renewable energy reached over $2 trillion, almost double the amount invested in fossil fuels [1]. Many countries are making strides to increase renewable energy production and reduce their reliance on fossil fuels.

The UK is powering ahead with wind energy, with 30% of the UK’s power generated by wind, and over half of the UK total electricity generated by renewable energy sources. China has the largest investment in and production of renewable energy in the world, with their largest source of renewable energy being hydroelectric. For countries that have already made large steps towards only using renewable energy, Costa Rica has consistently produced 98% of its electricity from renewable sources for the past decade, Sweden is on track to reach their goal of having 100% renewable energy by 2040, and Iceland power the majority of households from their geothermal activity [2].

These renewable energy transitions are set to continue to meet the net zero and decarbonisation targets set by countries around the world.

Investing in a cleaner future

Investing in companies that generate renewable energy, or in those that are a part of the renewable energy supply chain, gives investors exposure to the technology disrupting the energy sector. Investing in these companies can also provide your portfolio with diversification to traditional oil and gas companies; although, many of the oil and gas companies are leading research in renewable energy as a means of future-proofing their businesses and diversifying revenue streams.

There are risks associated to investing in renewable energy, however, as the technological and regulatory environment continues to develop, but this can also bring return potential as the energy transition progresses.

How can investors gain exposure to the renewable energy theme?

Investing in renewable energy companies, as with many other companies, can be done by investing in both bonds and equities. Investing in bonds is buying debt that has been issued by companies, usually for specific reasons. In the case of renewable energy companies, this reason may be to buy land for a new energy farm or to build a new geothermal site. Investing in equity means buying a portion of the company itself. The return potential from equity comes from the company making enough money to issue dividends to shareholders and from the share price (which reflects the value of the company) increasing.

The return potential from bonds comes in the form of fixed interest payments (“coupons” or “the yield”), which is generally a less risky investment than equities, although it won’t carry the same return potential. Investing in equity has higher risk and potential rewards as both dividends and an increase in the share price cannot be guaranteed and can even decrease.

If the company’s new wind farm generates record profits you will benefit from better dividends and a higher demand for the shares and not the bond holder as the bond continues under the same contract. However, if the new wind farm ends up being a drain on resources and a poor investment, the share price will drop to reflect this, although bond holders will continue to receive their coupons and bong repayment (unless the company defaults).

Like the choice between bond or equity, there is a choice to be made in how you make your investment. You can invest directly in a single company (or a couple of companies) or you can invest via a specialist fund which holds many companies. Investments in a single company will directly reflect any gains or losses of the company, and you will need to decide when to buy or sell. Investing in a fund means paying for an investment manager to make these decisions for you. It also reduces your exposure to a single company. This diversified exposure aims to reduce dependency on the ups and downs of a single investment to smooth out returns.

Some investment ideas

Clients of Charles Stanley Direct Online Investing have access to the Preferred List of funds, a selection of our best ideas researched by our in-house Collectives Research Team. Here are some of our renewable energy fund highlights:

Rathbone Ethical Bond Fund S Inc – This fund is composed of corporate bonds that meet Rathbone Greenbank Investments’ ethical and sustainability criteria. This means that any bonds bought in the fund will not engage in certain activities and demonstrate at least one positive activity or behaviour of the fund’s non-financial goals for a more sustainable world. Energy And Climate is one of the non-financial goals, this goal aims for a reduced level of greenhouse gas (GHG) emissions. Another goal is Resource Efficiency which supports a reduction in GHG emissions and energy use.

FP WHEB Sustainability Impact Fund C Acc – This fund has the FCA’s Sustainability Impact label, meaning the fund invests into companies that aim to achieve a positive and measurable impact on the environment or society. The fund invests into companies that are supporting healthy ecosystems, enabling healthy lives, enabling productive lives, and supporting a stable climate through greenhouse gas emission reduction. This last topic invests in companies that generate renewable power such as solar and wind power and other forms of cleaner energy and that replace carbon intensive power generation.

Baillie Gifford Positive Change B Acc – This fund also has the FCA’s Sustainability Impact label. The fund invests in companies that address a range of social and/or environmental challenges, including supporting the energy transition from fossil fuels to a more sustainable energy mix. Other challenges include those associated with social inclusion and education, environmental and resource needs, healthcare and quality of life, and base of the pyramid (addressing the needs of the poorest four billion people in the world).

Schroder Global Alternative Energy L Acc GBP[NB5] – This fund as a Sustainability Focus label, meaning this fund invests in assets with a primary focus on sustainability. The fund’s objective is to invest in companies that make a positive contribution to the global transition to lower carbon sources of energy. The criteria for companies to make it into the fund is that over 50% of revenue for the company comes from the energy transition, or the company performs a ‘critical role’ in the transition. As specialist fund with a focus on the energy sector, the fund will have a sector bias and higher concentration in energy compared the other mentioned funds which have exposure to the broader market. This concentration can cause higher volatility and should be considered before making it into your portfolio.

These, and other funds can be explored on our Preferred List.

Sources:

[1] Overview and key findings – World Energy Investment 2024 – Analysis - IEA

[2] 11 countries leading the charge on renewable energy | Climate Council