One of Australia's main exchange traded fund (ETF) providers will launch an ETF based on the clean energy sector.
VanEck is finalising preparation of the Vectors Global Clean Energy ETF (ASX: CLNE), which is expected to commence trading on the ASX in coming weeks. CLNE will track the S&P Global Clean Energy Index, which has delivered a one-year total return of 116.0% as of 29 January 2021.
"The demand for clean, green energy and the inevitable transition away from scarce non-renewable fuels is a global mega-trend offering huge investment potential," said Arian Neiron, managing director and head of Asia Pacific, VanEck, "In an Australian first, investors will soon be able to invest in an ETF of global clean energy and technology companies that are positioned to benefit from this structural shift that has the potential to transform industries, society and the world."
VanEck cited statistics from the US Energy Information Administration (EIA) forecasts, pointing out that power generation coming from renewable sources, such as wind, solar, hydro, and geothermal, should provide almost half of the world's electricity generation by 2050. A number of national governments have adopted renewable energy policies and net zero targets by mid-century , all intended to comply with the targets of the Paris Cimate Agreement to achieve a climate-neutral world by 2050 and to cap the rise in global average temperature to below 2C above pre-industrial levels.
"US President Joe Biden has brought renewed hope that the world will work harder to meet the Paris climate agreement, to which the US has re-committed," Neiron said. "Biden has promised to spend US$2 trillion on clean energy projects over the next four years. Elsewhere around the globe, money is pouring into the sector to invest in renewable energy projects."
CLNE offers targeted exposure to the largest global companies with low carbon footprints involved in clean energy production or businesses that produce technology related to clean energy production, from both developed and emerging markets.
The Index attempts to represent the full clean energy ecosystem by capturing companies involved in renewable energy production and related technology. The sector includes biofuel and biomass energy production, technology and equipment, ethanol and fuel alcohol production, fuel cells technology and equipment, geothermal energy production, hydro electricity production, turbines and other equipment, solar energy production, photo voltaic cells and equipment, wind energy production, turbines and other equipment.
"As the momentum builds, so too will demand for renewable energy and investment in those companies that produce it and the technologies that drive it," Neiron said. "Investors are demanding action on climate change and increasingly they are demanding investment products that facilitate a lower carbon future. CLNE responds to this need."
Research from Rainmaker Information found that the assets under management for ESG-themed exchange traded products (ETPs) have tripled in the last three years. Following rapid growth and some impressive performance, that proportion has tripled to 3% of the market, or 1.8 billion as at June 2020.
The growth in ESG products has outpaced the wider ETP market. The June 2020 Rainmaker Information ETP report notes that "since June 21017 the overall ETP market grew by 31% pa from $29.3 billion to $65.6 billion, Smart Beta products grew by 60% pa from $1.3 billion to $5.4 billion. ESG products meanwhile grew 76% pa from $325 million to $1.8 billion."
The ESG ETP sector is has five participants - BetaShares, Russell Investments, Vanguard, VanEck, and InvestSMART.
"We are focused on providing premier investment solutions which leverage enduring investment themes," Neiron said. "Our new clean energy ETF is another example of this commitment. Fossil fuels are finite, they will run out. CLNE gives investors an opportunity to invest in the infinite global clean energy supply of the future, and to participate in the transition from fossil fuels to renewable sources.
"CLNE gives investors access to a long-term structural growth opportunity, adding to the 25 ETFs we already have listed on the ASX. Our ASX-listed smart beta ETFs have attracted a range of investor types which is testament to the high quality, well researched and relevant strategies we offer," Neiron said.