How to Start Environmental Investing in Australia
Environmental investing directs capital towards assets, businesses and technologies that support improved environmental outcomes while seeking a financial return.
Getting started can be relatively easy. Investors can purchase shares in an environmental company, invest in a clean energy exchange traded fund (ETF) or select an environmentally focused superannuation option.
Building a genuinely diversified environmental portfolio is far more difficult.
Unless investors have substantial capital, strong industry connections or considerable time, gaining diversified direct exposure to environmental investments can be challenging. Many opportunities are unlisted, privately negotiated, difficult to find and unavailable through conventional investment platforms.
Even when investors can access an opportunity, they may face a high minimum investment, limited liquidity and no simple way to exit.
Start with the environmental investment universe
Environmental investing extends beyond buying shares in solar or wind companies. It can include:
Renewable energy generation and storage
Electricity transmission and grid infrastructure
Innovative environmental technologies
Green bonds and environmental debt
Carbon markets and emissions reduction
Recycling and the circular economy
Sustainable agriculture and water management
Biodiversity and natural capital
These opportunities span listed shares, private companies, infrastructure, debt, environmental commodities and unlisted projects.
Before investing, investors should consider what they want their environmental allocation to achieve. This may include capital growth, income, diversification, environmental benefits or a combination of these objectives.
They should also consider their investment timeframe and whether they may need access to their capital. This becomes increasingly important when moving beyond listed markets.
Begin with accessible investments
Listed markets generally provide the simplest starting point.
Environmental companies listed in Australia or overseas can be purchased through a share trading account. ETFs can provide exposure to several companies through a single investment. The government website Moneysmart, explains that ETFs can help investors diversify within an asset class and access investments that may otherwise be difficult or expensive to reach (1).
However, a clean energy ETF is not necessarily a diversified environmental portfolio. It may remain concentrated in listed equities, one region or a narrow industry. Investors should examine the underlying holdings rather than relying on the product’s name.
That said, ASIC has warned about greenwashing, where the environmental or sustainability characteristics of an investment product are misrepresented (2).
Green bonds and environmental debt may add income and a different risk profile. However, many individual bonds have large minimum denominations or trade through markets designed primarily for institutional investors.
Listed investments can provide a useful entry point, but they represent only part of the environmental investment universe.
Access to deal flow is a major barrier
Many environmental opportunities never reach a public exchange or ordinary investment platform.
Renewable energy projects may raise capital from infrastructure managers, overseas pension funds or established industry participants. Private environmental technology companies may approach venture capital firms, family offices and sophisticated investor networks. Environmental debt may be offered directly to selected institutional investors.
Access to this deal flow often depends on relationships with project developers, advisers, brokers, founders and other investors. Even when an opportunity becomes known, demand may exceed the available allocation. An investor without an established relationship may receive only a small allocation or none at all.
Finding an investment is only the beginning. Investors must then assess the technology, environmental benefits, revenue model, management, regulation, funding requirements, valuation and potential exit pathway.
Completing this due diligence requires considerable time and specialist expertise.
Unlisted investments create liquidity challenges
Liquidity describes how easily an investment can be sold and converted into cash without accepting a significant reduction in value.
Listed shares and ETFs can generally be traded during market hours, although prices and trading volumes vary.
Unlisted investments operate differently. There may be no active secondary market or readily available buyer. Capital can remain committed for several years, with an exit dependent on a sale, refinancing, maturity or another liquidity event.
Unlisted funds may restrict withdrawals, provide limited withdrawal windows or delay redemptions if sufficient cash is unavailable. Moneysmart warns that managed funds can restrict, delay or stop withdrawals in some circumstances (3). This risk is particularly heightened on investments that are not readily available to the public
Environmental assets can also have long development periods. Renewable infrastructure may require planning, approvals, construction and grid connection. Emerging technologies may require several funding rounds before reaching commercial scale.
Illiquidity can provide access to long-term opportunities unavailable through listed markets. However, investors must be capable of leaving their capital invested for the required period.
Diversification requires capital and access
Buying several renewable energy shares may reduce exposure to one company, but the resulting portfolio can remain concentrated in the same sector and asset class.
Broader diversification may combine operating infrastructure, emerging technologies, environmental debt, carbon-related investments, circular economy businesses and natural capital opportunities.
These assets have different revenue models, development periods and risks. Building this portfolio directly requires enough capital to meet multiple minimum investment amounts without becoming overexposed to any single opportunity.
It also requires consistent deal flow. An investor cannot construct a diversified private portfolio if only one or two suitable investments become available.
A more practical approach
A specialised environmental fund can pool investors’ capital and use its industry relationships and investment expertise to access, assess and manage opportunities across several environmental sectors.
The EnviroInvest Investment Fund has been established to provide eligible wholesale investors with diversified exposure to environmentally conscious assets. Its investment universe includes renewable infrastructure, innovative environmental technologies, carbon markets and abatement, green bonds and debt, the circular economy and biodiversity markets.
Instead of requiring investors to source every opportunity, secure an allocation, complete the due diligence and monitor each asset independently, the Fund brings multiple environmental investments together within one portfolio.
Investing through a fund does not remove risk. Investors must consider its liquidity arrangements, investment timeframe, fees, valuation approach and exposure to unlisted assets. These details are set out in the Fund’s Information Memorandum.
The Bottom Line
Starting environmental investing can be as simple as buying a listed share or ETF. Achieving diversified direct exposure is considerably harder.
Investors must find suitable opportunities, gain access to deal flow, secure allocations, complete specialist due diligence and accept that some unlisted investments may be difficult to sell.
Without substantial capital, strong connections or considerable time, assembling and managing a diversified environmental portfolio can be impractical.
The EnviroInvest Investment Fund provides eligible wholesale investors with a way to consider diversified environmental exposure through a single investment, including opportunities that can be difficult to access independently.
References
(1) Australian Securities and Investments Commission, Moneysmart, Exchange traded funds (ETFs). https://moneysmart.gov.au/managed-funds-and-etfs/exchange-traded-funds-etfs
(2) Australian Securities and Investments Commission, Greenwashing: A view from the regulator, 2 May 2024. https://asic.gov.au/about-asic/news-centre/speeches/greenwashing-a-view-from-the-regulator/
(3) Australian Securities and Investments Commission, Moneysmart, What is a managed fund? https://moneysmart.gov.au/managed-funds-and-etfs/what-is-a-managed-fund
Important Information
EnviroInvest Pty Ltd ACN 685 107 957 (“EnviroInvest”) is an Authorised Representative of Daylight Financial Group Pty Ltd ACN 633 984 773 (“DFGPL”) which is the holder of an Australian Financial Services Licence (AFS Licence No. 521404).
Information in this commentary is current as at date prepared unless otherwise stated. However, please bear in mind that investments can go up or down in value, and that past performance is not a reliable indicator of future performance. For more Important Information please refer to the Disclaimer section of this website.
This communication may contain general financial product advice. It has been prepared without taking into account your personal circumstances, and you should therefore consider its appropriateness in light of your objectives, financial circumstances and needs before acting on it.
If our advice relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Information Memorandum (IM) or Product Disclosure Statement (PDS) before making any decision.