Thematic Review | Looking Ahead: Going Green and Clean? (4/6)

Chapter 1:News and Updates

Chapter 2: Performance Table and Heatmap

Chapter 3: Performance Analysis

Chapter 4: Looking Ahead – Going Green and Clean?

Chapter 5: Thematic Survey

Chapter 6: Thematic Deep Dive

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Looking Ahead: Going Green and Clean?

The Russian invasion of Ukraine rocked financial markets -but perhaps none more so than in energy and commodities. Notably the price of oil and natural gas spiked. For many the invasion has accentuated the need for Europe to speed up its green transition.

In recent years Europe has become dependent on Russian fossil fuel exports. Indeed much of this stemmed from the 2014 invasion of Ukraine. It has also largely been driven by Europe’s natural gas production going into continuous decline owing to production limits in the Netherlands and production decline in the North Sea. To plug this gap European countries have looked toward Russia as a source of cheap fossil fuel energy. So it can be argued European states wasted nearly a decade when they could have been greening their economies while also increasing the security of the continent.

Europe therefore now has the task of reducing its dependence on fossil fuel imports both from Russia and other countries. But how do we secure a more stable and less price-volatile energy supply? Over the past few years we have seen massive investment into renewable energies. Renewable energies are a reliable and cheap source of energy. The levelized cost of energy (LCOE) has come down massively in recent years making wind solar and the like competitive compared to oil and gas. Importantly new installation costs for renewable energy are cheaper than options reliant on fossil fuels.

However in the face of the Russian invasion of Ukraine the EU has looked to invest even more. In May the European Commission said the EU needed to find an extra &euro210bn over the next five years to pay for phasing out Russian fossil fuels and speeding up the switch to green energy.

All of this has meant an increased interest among investors in the clean energy theme. In 2021 we created the HANetf S&P Global Clean Energy Select HANzero™ UCITS ETF (ZERO). ZERO tracks the S&P Global Clean Energy Select Index providing pure-play exposure to 30 companies across biofuel fuel cell technology geothermal energy hydroelectricity solar and wind.

One unique feature about this fund is the carbon offset it uses. Part of the fund’s fee is committed towards decarbonisation projects aimed at neutralising the emissions of constituents in the portfolio. The carbon emissions of investments in this fund are offset through projects such as the conservation of the Topaiyo Forest Conservation in Papua New Guinea and funding the Musi River Hydro Plant in Sumatra Indonesia. HANetf believes that carbon offsetting will become as important as currency hedging for ETF investors.

There are also funds that offer a much more concentrated approach. For example the Solar Energy UCITS ETF (TANN) tracks the EQM Global Solar Energy Index (SOLARNTR) which is focused on companies that derive significant revenue from solar energy-related business operations. This includes the manufacturing of photovoltaic solar cells and systems producers of solar power generation equipment and components providers of solar power system installation development and financing and/or manufacturing of solar-powered charging and energy storage systems.

However utility scale green energy will take a while to build out. Therefore the principal goal of energy policy in Europe at this moment should be a step change in efforts to reduce fossil fuel consumption.

According to Agora Energiewende by 2027 energy efficiency measures district heating and a massive continent-wide drive to install heat pumps will hugely reduce energy use stemming from buildings. In European industry likewise efficiency measures and electrification in low and medium temperature heat processes could result in substantial energy savings. This is so-called “smart energy”. Tapping into this theme is the iClima Smart Energy UCITS ETF (DGEN).

Next Chapter: Thematic Survey