Renewable energy is the future, say environmentalists. But for green and ethical investors it has turned into a nightmare, with makers of wind and solar power systems among the worst-performing stocks in recent years.

Take Vestas, the Danish wind turbine maker. Early investors enjoyed sparkling returns, with shares leaping from 34 Danish kroner in 2003 to 698 in 2008 – a 20-fold rise. But since then, beset by the loss of government subsidies, cost overruns, production delays and competition from China, the price has collapsed. Today it is trading at 35 kroner – so someone investing in 2008 will have lost nearly 95% of their money.

In August Vestas revealed it had slumped into losses and shed another 1,400 jobs, bringing total redundancies for the year to more than 3,700. It had planned to construct a plant at Sheerness docks in Kent to supply turbines for expected deep-water North Sea windfarms, but this was axed in June.

Solar panel manufacturers have also burnt a hole in investors' pockets. Look at SunTech, the world's biggest maker of PV (photovoltaic) panels, based in Wuxi, China. Its private equity backers (notably Goldman Sachs) made a fortune when it listed on the New York Stock Exchange in 2005, making well over 10 times their original investment. So did the people who bought at the initial share launch, with the shares shooting from $20 to $79 in late 2007. And today? They are changing hands at just 92 cents. First Solar, another one-time darling of Nasdaq, collapsed from $308 in April 2008 to $23 last week. Solar is an industry awash with overcapacity in China, falling prices and declining government subsidies.

Funds that specialise in renewable energy have fallen a long way short of expectations. Impax Environmental, an investment trust, has lost 20% over the past five years, while BlackRock New Energy investment trust has done even worse, falling 49.9% since 2007. It's a salutary reminder to avoid investment fads and bubbles.

Meanwhile, many "sin" stocks screened out by ethical investors have outperformed. At the turn of the century, in the midst of the "TMT" (technology, media and telecoms) stock market bubble, tobacco companies were the market's most unloved sector. Shares in British American Tobacco, makers of Dunhill, Kent, Lucky Strike and Pall Mall, were changing hands at 224p. Today they fetch £31.93.