How Russia's war made clean energy a necessity and opportunity

"As with any investment, it pays to know what is being bought and investors should research what the thematic fund is investing in as the name may not always reflect what is being held; something that is particularly true of funds with socially responsible investing (SRI) or ESG in their name. 

"You’d be surprised what some of these ESG and SRI funds actually invest in. Many of the battery and electricity storage-related funds have a significant exposure to China, for example."

ESG premium

David Merriam, co-manager of the sustainable managed portfolio service at Tilney Smith & Williamson, says amid the acceleration in the shift to renewables, investors need to be careful of valuations when looking at renewables assets.

"There is an ESG premium applied to these assets. People want to hold them and they fit well into sustainable products and sustainable investment strategies," Merriam adds.

"For that reason they tend to trade relative to the cash flows they are producing at a more expensive level than other similar assets in the market. Investors need to be careful when buying these assets and make sure they are aware of the price they are paying.

"That said there are opportunities and one of them is looking at companies in the midst of their transition."

These are companies that are not necessarily pure play renewables producers or generators at this stage, but are on their way there, so as their reliance on carbon-emitting assets reduce, their valuations should increase.

Anna Haugaard, fund analyst at wealth manager Brewin Dolphin, says the investment opportunity does not just lie in energy generation but also in smart grids and networks, equipment, batteries and storage, charging points and hydrogen and carbon capture. 

“UK and European integrated oil and gas companies are investing heavily in wind and solar projects and are putting capital expenditure into charging points as well,” she adds. 

“Moreover, they are well positioned because of their existing infrastructure, such as pipelines and storage, to be leaders in hydrogen and carbon capture and storage.”

Renewable energy has an infinite supply. It is not like oil and gas, where there are finite reserves. 

They can generate an income, but this may vary depending on the price paid for electricity and also any incentives received by the renewable energy installation companies.

While the transition to renewable energy reduces the dependency on fossil fuels, it does not come without considerable investment and a potential increase in the cost of energy in the short term. 

Baynes says with the advent of new technology, there will inevitably be opportunities for investors to take advantage of. However, it will not be a "happy" transition for all as some companies get left behind and fail to make the transition.