Investing in the future of energy gets an ETF: carbon credits, nuclear and solar
Investors will soon be able to invest in three new ETFs on the ASX that are focused on carbon credits, uranium and solar.
If there is one thing the Russian invasion of Ukraine should have taught us, it is the importance of energy in the world economy.
As Russian oil and gas was progressively banned by many countries, energy prices rose sharply right around the globe, sending the prices of energy companies up with them.
The episode has also caused a rapid rethink in much of Europe, with many countries looking for energy alternatives rather than relying on supplies from Russia.
That response plus the election result that showed that many voters are keen to get on with reducing our reliance on fossil fuels has led to the arrival of several investment products around that theme.
Three green products for carbon credits, nuclear and solar
The three “green” products include a synthetic Global Carbon Credits ETF from VanEck and two products launching in June from local ETF company BetaShares which will track solar energy and global uranium.
The VanEck Global Carbon Credits ETF (ASX: XCO2) is awaiting approval but is set to trade under the ticker code XCO2 and will track the ICE Global Carbon Futures Index based on carbon credit futures prices from the most actively traded and largest carbon markets and emission trading schemes globally.
That includes the European Union Emissions Trading Scheme, the Western Climate Initiative (California Cap and Trade Program), the Regional Greenhouse Gas Initiative (RGGI) and the UK Emissions Trading Scheme with a collective annual trading volume of US$683.9 billion.
VanEck said that investments in carbon markets were seen as a vital tool in helping to combat climate change with carbon credit prices potentially set to rise.
“This opportunity is important because it gives investors access to a global marketplace for carbon credits,” said VanEck’s Asia-Pacific chief executive officer Mr Arian Neiron.
“Importantly, carbon credit prices are expected to increase significantly as the fight against climate change gains momentum. This will raise the value of carbon credits futures and this asset class will likely benefit significantly over the longer term, making it attractive for investors to get exposure.”
Exposure to global solar and uranium companies
BetaShares Solar ETF (ASX: TANN) will track companies involved in the solar energy industry while the Global Uranium ETF (ASX: URNM) will provide exposure to uranium companies.
TANN is designed to give investors exposure to the solar energy industry, including companies involved in the manufacturing of solar panels, solar-powered charging and energy storage systems, inverter suppliers, installers and solar project finance providers.
URNM will concentrate on global companies involved in modern nuclear energy, the development and production of uranium and mining exploration, including companies that hold physical uranium or uranium royalties.
Uranium supplies in deficit
BetaShares chief executive officer Alex Vynokur said: “The global market for uranium is currently in a substantial supply-demand deficit driven by increasing acceptance of nuclear energy as a safe, reliable and low-carbon energy source.”
“In fact, the European Commission has proposed the inclusion of nuclear energy in the EU Taxonomy for sustainable activities. It’s clear that uranium has an important role to play in maintaining the world’s energy security, as well as acting as a bridge and complement to renewable energy solutions.”
Mr Vynokur said sections of the investment management industry had led the way in providing ways for investors to express their values within their investment portfolio even ahead of political support.
Investment managers showing the way
“In this climate, investors should do their homework before investing in any fund that claims to be ethical or sustainable, by looking under the hood of the fund and determining whether it aligns with both their values and investment objectives.”
Mr Neiron said having a global carbon credit fund listed on the ASX will be a handy barometer for people and is one way they can use their investments to bring about change.
That included the large-scale transformation of the Australian electricity sector in Australia.
While consumer demand for green investment products might be high, it is important to remember that thematic ETF’s can be much narrower and more concentrated than the more usual broad index style ETF’s – potentially leading to much more volatile trading.