The effects of global climate change on the environment are becoming more pronounced – glaciers are shrinking, the ice layer on rivers is thinning, heat waves are increasing and the frequency and severity of droughts and storms are increasing. The pressing issues of climate change and environmental issues, many of which are due to greenhouse gas (GHG) emissions, have brought to the fore the damage caused by fossil use over the century. Against this background, clean energy is proving to be a viable alternative to conventional energy sources and thus a mechanism for limiting damage.
Here’s a look at some clean energy investment opportunities, mostly through exchange traded funds (ETFs).
Is clean energy Are defined from NCSEA as energy from renewable, emission-free sources (renewables) as well as energy that is saved through energy efficiency measures. The terms renewable energy and clean energy are used synonymously.
For years, fossil fuels have played an important role as the primary energy source in the industrialization and further development of countries around the world. However, they have also contributed to pollutants and toxins to all constituents of the environment. Despite the negative impact of its use and growing awareness, switching to renewable sources is not easy, although it is vital to global efforts to be carbon neutral.
Concerns about climate change brought countries around the world together for the Paris Agreement in December 2015, which aims to limit global warming to well below 2, preferably 1.5 degrees Celsius compared to the pre-industrial level. Consumers, businesses and governments are becoming increasingly aware of the carbon footprint. After a 2020 study of Deloitte, 53% of all household respondents said it is very important to them that some of their electricity comes from renewable sources, while 51% of corporate respondents work to get more electricity from renewable sources.
In the US, the Biden government has already started its to plan “Put the United States on an irreversible path to achieve net-zero macroeconomic emissions by 2050 at the latest,” which means re-entering the Paris Agreement, investing $ 2 trillion in clean energy and fully decarbonizing the power sector includes until 2035. In April 2021, President Biden will be announced a new goal for the US to “achieve a 50-52% reduction in aggregate net greenhouse gas emissions by 2030 from 2005 levels – building on progress made to date and positioning American workers and industry to address the climate crisis deal with”.
In 2020, when the consumption of all fuels largely decreased, the demand for renewable energies as an energy source increased. According to a report According to the International Energy Agency (IEA), “Renewable power sources such as wind and solar have grown the fastest in two decades in 2020 and will grow much faster in the coming years than they did before the pandemic”.
The International Renewable Energy Agency (IRENA) has as part of its Transforming Energy Scenario Estimates that by 2050 70% of the world’s energy-related carbon dioxide (CO2) emissions will be reduced, with 90% of these reductions being achieved through renewable energies and energy efficiency measures. Overall, these efforts promise higher economic growth, more jobs and improved living conditions.
Investment opportunities through ETFs
ETFs offer a diversified and convenient way to invest in clean energy companies.
The iShares Global Clean Energy ETF (ICLN) offers involvement in around 80 companies that produce energy from sun, wind and other renewable sources around the world. The ETF diversifies the portfolio across 14 nations with an allocation of 40% in the USA, followed by Denmark with 13.5%. Founded in 2008, it has $ 6.02 billion in assets under management and an expense ratio of 0.46%. The ETF tracks the S&P Global Clean Energy Index and currently has an allocation of 48.5% in the top ten Holdings, which are:
- Vestas Wind ADR (VWDRY)
- Enphase energy (ENPH)
- Orsted ADR (DNNGY)
- Plug-in power supply (PLUG)
- Xcel Energy (XEL)
- NextEra Energy (NO)
- Iberdrola ADR (IBDRY)
- ENEL ADR (ENLAY)
- SolarEdge (SEDG)
- SSE-ADR (SSEZY)
Launched in 2007, First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) tracks the Nasdaq Clean Edge Green Energy Index (CELS). Although CELS is a modified market capitalization weighted index, its methodology includes caps to avoid high concentrations in larger alternative energy stocks. CELS consists mainly of companies that are manufacturers, developers, distributors or installers of clean energy technologies. In terms of sector allocations, 26% are currently in the renewable energy equipment sector and 21% in the automotive sector. With nearly $ 2.65 billion in assets under management, the ETF is split across 53 stocks with an allocation of 55% in the top ten holdings, including:
Next up is that Invesco WilderHill Clean Energy ETF (PBW). The fund was launched in 2005 and comprises 90% of its portfolio in the stocks of the WilderHill Clean Energy Index. The index captures companies that could “benefit from a societal transition to cleaner energy and decarbonization”. The three most important sector allocations – industrials, consumer discretionary and information technology – add up to 78%. PBW has a portfolio of 68 holdings with a bias towards mid- and small-cap stocks. The ETF has $ 2.23 billion in assets under management and an expense ratio of 0.70%. The top ten stocks have an allocation of 17.14% and they are:
Some ETFs not only offer a holistic commitment to renewable energies, but also focus on wind or solar energy. Overall, some of the other ETFs offering clean energy exposure are as follows:
- Alpen Clean Energy ETF (ACES)
- Invesco Global Clean Energy ETF (PBD)
- SPDR S & P Kensho Clean Power ETF (CNRG)
- VanEck Vectors Low Carbon Energy ETF (SMOG)
- First Trust Global Wind Energy Index Fund ETF (FAN)
- Global X YieldCo & Renewable Energy Income ETF (YLCO)
Disclaimer: Information on funds based on fact sheets. Sector weighting data, key components and assets as of June 24, 2021, subject to change. The author has no position in the index or the stocks mentioned. Investors should not view the above information as a factual recommendation but as an idea for further consideration. The report has been carefully prepared and any exclusions or errors therein are wholly unintentional.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.