Highlighting the global move to clean energy, the US Energy Information Administration (EIA) forecasts 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. This move to clean energy is being driven by governments adopting renewable energy policies to meet the Paris Climate Agreement.
In the US, Mr Biden has promised to spend US$2 trillion on clean energy projects over the next four years. Another big GHG emitter, China, is leading global renewable energy production and is the world’s largest investor in renewable energy. Elsewhere around the globe, money is pouring into renewable energy projects.
However, much more investment is still required to meet the Paris Agreement. According to the International Renewable Energy Agency (IRENA), meeting international climate objectives will require a massive reallocation of capital toward low-carbon technologies and renewable energy, “and the mobilisation of all available capital sources”. IRENA has stated that annual investment in the renewables space must jump almost threefold to US$800 billion between 2020 and 2050 and the pace must accelerate considerably for the world to meet climate goals.
These goals are intended to combat rising temperatures, which are causing phenomena such as loss of ice sheet mass, rising sea levels and longer and more intense heatwaves, with which Australians are well accustomed. Understanding such long-term climate trends is essential for the safety and quality of human life, as is reducing greenhouse gas (GHG) emissions and sourcing more energy from renewable sources rather than fossil fuels to limit global warming.
Continuing the planet’s long-term warming trend, 2020 tied for the hottest year on record, matching 2016, NASA has found. The year’s globally averaged temperature was 1.02 degrees Celsius warmer than the baseline 1951-80 mean, according to scientists at NASA’s Goddard Institute for Space Studies (GISS).
As most of the scientific community agree, global temperatures are increasing due to human activities, specifically GHG emissions, like carbon dioxide and methane. Most GHG emissions result from carbon dioxide, or 81 per cent in 2018. That’s what makes the Paris Climate Agreement so important, as it aims to cap the rise in global average temperature to below 2 degrees Celsius above pre-industrial levels and to cut GHG emissions. In order to reach the goal of the Paris Agreement, countries that have signed the agreement (close to 200) are required to set goals for their climate efforts every five years, increasing their level of ambition over time, something with which Australia is lagging.
Turning to the investment outlook, with the surge in demand for renewable energy, companies in the clean energy space are poised for similar growth, according to index provider S&P Dow Jones Indices (S&PDJI). Already, companies in the clean energy sector have benefited. The S&P Global Clean Energy Index has delivered a one-year total return of 116.0 per cent as of 29 January 2021. The S&P Global Clean Energy Index provides liquid and tradable exposure to 30 leading clean energy companies from around the world. According to S&P, much of the growth in renewable energy consumption through to 2050 will primarily be from non-OECD countries, so having a global investment perspective is important.
The Global Clean Energy Index aims to represent the full clean energy ecosystem by including companies from both the energy production and the technology and equipment sides in the various segments of renewable energy across the globe. That includes biofuel energy, ethanol and alcohol fuel production, hydroelectricity production, solar and wind energy production.
Australian investors will soon be able to invest in a global clean energy ETF, which includes companies that could benefit from the increasing use of clean energy. The VanEck Vectors Global Clean Energy ETF (ASX: CLNE) is in the final stages of preparation and, subject to regulatory approval, is expected to commence trading on ASX in the coming weeks. CLNE will track the S&P Global Clean Energy Index and offer targeted exposure to the largest global companies with low-carbon footprints involved in clean energy production, or manufacturing of technology or equipment related to clean energy production.
Arian Neiron, VanEck's managing director and head of Asia Pacific
General information only
VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (“VanEck”) is the responsible entity and issuer of VanEck Vectors Global Clean Energy ETF (“the fund”). Units in the fund are not currently available and a PDS has not yet been issued. A PDS will be made available at www.vaneck.com.au prior to the commencement of trading. Investors should consider the PDS in deciding whether to acquire units in the fund. This information is general in nature and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision investors should read the PDS, and with the assistance of a financial adviser consider if it is appropriate for their circumstances.
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