Clean energy is a rapidly growing, transformative mega-trend offering investors the potential opportunity to capture real returns while tackling some of our most pressing climate goals.
The sector is driven by supportive government policies as part of efforts to transition towards net zero, and simple economics as the price of renewables tumbles due to technological advances. Renewable energy is now cheaper than coal in two-thirds of global markets, according to a report by International Renewable Energy Agency
“As awareness of this theme rises, I think investors will become increasingly knowledgeable about clean energy and how it is produced,” says Steve Gray, Head of Wealth Management at LGIM.
“One consequence of this might be that we’ll potentially see rising demand for ETFs that capture the whole renewable energy value chain rather than just manufacturers of solar panels, for instance,” he says.
Opportunity across the value chain
As well as original equipment manufacturers (OEMs), the value chain includes utilities that own clean power generating facilities and suppliers that provide a diverse set of components and services to OEMs.
Grey believes that gaining exposure to the whole value chain while remaining focused on the clean energy theme will highlight the importance of specialist industry knowledge.
“That’s why our clean energy ETF aims to draws on data on more than 120,000 power-related tenders and contracts worldwide to respond to new entrants and clean energy trends,” he says.
The asset manager’s view
While the investment case for this theme stands up on purely financial grounds, many investors will also want to see their capital being used to drive positive change in the world they live in.
Asset managers such as LGIM with a long history of actively participating at shareholder meetings on behalf of index investors could stand out to asset owners who do not believe an indexed approach to investment should be a barrier to having a voice on the issues that matter.
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