Be a part of a renewable future... It's about time!

Two hundred years ago, the industrial revolution marked the beginning of a new era in human history that has transformed rural and agrarian societies into industrial powers. The transition from hand production to new manufacturing processes has been made possible through the large-scale use of fossil fuels. Critics blame the industrial revolution for destroying ecosystems and jeopardizing biodiversity as humans have expelled huge amounts of carbon dioxide into the atmosphere that traps radiation and raises the average temperature of the Earth. 

The heat-trapping nature of carbon dioxide and other gases was demonstrated as early as the mid-19th century. As stressed by Nasa’s Global Climate Change Office, “there is no question that increased levels of greenhouse gases must cause the Earth to warm in response.”

As a result, urgent action is needed to address global warming and avoid significant consequences for human health.

The world in a new direction

Now that humanity has become aware of our impact on the planet, we can hope that governments and corporations are on their way to adopting and embracing renewable energy. From this perspective, the COP26 had gathered 120 world leaders with the aim of promoting climate-friendly policies. Participating nations agreed to cut CO2 emissions to keep temperature rise to 1.5 degrees Celsius above pre-industrial levels. Moreover, for the first time, there was an explicit plan to reduce coal use globally, as well as an agreement to phase out subsidies that artificially lower the price of coal, oil, or natural gas. Unfortunately, the current war between Russia and Ukraine could let these climate actions go unaddressed and take many years for climate policies to come forward as a political agenda. This is the reason why there is an even greater need to encourage private initiatives and promote responsible investment practices.

Investing in a solution

Investing in clean energy – energy derived from sources that do not release air pollutants and greenhouse gases – may be one way to mitigate climate change risk. David Stephenson, director at Canadian Imperial Bank of Commerce Asset Management, said in an interview with NEO ETF Market that clean energy may be defined as all the energy “produced with significant reductions in carbon emissions versus traditional forms of energy (i.e., fossil fuels).” It includes renewables as well as clean technology that enables a more sustainable energy system.

Clean Energy ETFs

Now that thematic investing has become widespread, it allows investors to capitalize on trends that could shape the future such as alternative energy.

Trackinsight has developed a proprietary Thematic Investing classification based on a 3-tier structure. This taxonomy facilitates ETF research using a transparent framework which maps each ETF against 5 Megatrends, 12 Trends and 68 Themes. These megatrends signal long-term structural changes affecting day-to-day lives. They incorporate social, demographic, environmental, economic, and governmental changes.

Clean energy is a sub-theme that belongs to the alternative energy trend. The latter captures investment opportunities also tracked by the following megatrends: technology innovation, rising urbanization, and environmental changes

Trackinsight’s data reveals that there are 37 ETFs focused on the clean energy sub-theme. They invest in the 7th Sustainable Development Goal, Affordable and Clean Energy. Assets under management totalled USD$16 billion as of April 29th. They attracted net inflows of USD$500 million over the last four months.

The iShares Global Clean Energy UCITS ETF (INRG) is the world’s largest clean energy ETF as evidenced by its assets under management. This passively managed fund was launched on July 6th, 2007. It seeks to replicate the performance of the S&P Global Clean Energy Net Total Return Index.

INRG’s assets under management amounted to USD$5.6 billion as of April 29th. It attracted net inflows of USD$750 million since the beginning of the year despite a negative YTD return.

This ETF invests in companies involved in clean energy production or providing equipment required for renewable energy systems in both developed and emerging markets. It excludes companies which exceed a carbon threshold determined by the index.

The fund currently holds 103 stocks with 44.82% of total assets in the United States, 12.69% in China, and 9.68% in Denmark while the rest is distributed across 9 other countries.

At the sector level, INRG has a 41.41% exposure to utilities, 29.26% to information technology, 24.04% to industrials, 3.57% to energy, and 1.26% to materials. The top 5 holdings account for 32.55% of the overall portfolio.

INRG charges 0.65% a year. The fund trades on the London Stock Exchange in GBP, Borsa Italiana in EUR, SIX Swiss Exchange in USD, and Deutsche Boerse in EUR.

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