Investing in global clean energy

Now that the sun is shining brightly, the solar panels in our homes, our neighbourhoods and throughout the rest of the Netherlands are working at full capacity. Given the growing number of discussions surrounding climate change, even within the political sphere, this is a great way of contributing towards a cleaner environment. The impact of climate change – from forest fires to floods – is becoming increasingly evident. In other words, we are now faced with significant challenges and this is especially true in light of the substantial expected growth of the global population.

Population growth and urbanisation: pressure on the feasibility of the Climate Agreement

The website Worldometer provides a wealth of interesting data. For example, they estimate that the global population will grow from 7.8 billion in 2020 to around 9.75 billion in 2050. One demographic also set for a sharp increase is the number of city dwellers. Today, 56% of the world’s population lives in cities, whereas, by 2050, this figure will exceed 68%. However, all these people will want to continue breathing clean air.

In their World Energy Markets Observatory report, Capgemini has outlined a number of challenges posed by population growth and increasing urbanisation. They foresee, for example, an increase in the interweaving of geopolitical tensions and energy concerns. For example, while the US used to purchase large quantities of oil from Saudi Arabia, among others, today it is producing increasing quantities of shale oil. Besides potentially reducing global oil prices, this newly tapped resource may also reduce the demand for Saudi Arabian oil, thus affecting mutual (trading) relationships.

In addition, the International Energy Agency predicts that greenhouse gas emissions – following a temporary pandemic-induced dip – will increase significantly and (may) jeopardise the feasibility of the current Climate Agreement. To turn the tide, renewable energy – biomass, hydropower, wind, solar and geothermal energy – will (need to) become the fastest growing sector. This will provide opportunities for investors.

Investing in the ‘clean energy’ sector with international diversification

Those wishing to increase their exposure to clean energy – also known as renewable energy or ‘renewables’ – can do so via a wide range of options on the Frankfurt stock exchange with the iShares Global Clean Energy UCITS ETF (ISIN: IE00B1XNHC34). A second opportunity is listed on the Paris stock exchange in the form of Lyxor New Energy (DR) UCITS ETF (ISIN: FR0010524777). Both physically invest in global equities in the ‘renewable energy’ sector, in the broadest sense of the word. The iShares ETF currently holds 82 stocks, while the Lyxor ETF holds 40. There is some overlap in terms of investments, with NextEra Energy, Iberdrola, Ørsted and Enphase Energy, among others, featuring in both underlying portfolios. However, there are also differences. For example, Lyxor’s fund includes Schneider Electric, whereas iShares’ fund does not. Overall, iShares’ ETF clearly offers a wider spread for only 0.05% higher annual costs.

In terms of fund performance, both funds do what they are supposed to: follow the benchmark except when it comes to friction costs. iShares follows the S&P Global Clean Energy Index, while Lyxor follows the World Alternative Energy Total Return Index. Based on its performance, iShares scores a respectable three stars from Morningstar, and Lyxor achieved four.

What else? Lyxor scores remarkably well in Morningstar’s Analyst Rating&trade, achieving a ‘Gold’ rating. Both also invest in stocks that score well when it comes to corporate sustainability and have a smaller carbon footprint than their peers. Overall, iShares receives four globes with regards to the Morningstar’s Sustainability Rating™, and Lyxor receives five.

And the dividend yield? This stands at around 0.65% per annum for both titles. iShares usually pays out in May and November, while Lyxor usually does so in July. Please note, however, that the value of your investment can fluctuate. Past results are no guarantee for future performance.

At a glance, both titles are of interest for long-term investors who are able and willing to bear equity risks, while equally seeking to accrue sustainable assets with a clear conscience. Want to know more about ETF’s? Click here for the iShares title and here for Lyxor’s.

Investing carries risks. Your deposit may depreciate.