As climate awareness is an increasing priority for corporations and governments the world over and as carbon-reducing efforts take center stage, carbon investing is gaining more traction.
Part of the reason is attributable to carbon-capture technologies gaining more attention, particularly against the backdrop of more governments realizing energy security is national security. That could be one sign of opportunity with exchange traded funds such as the KraneShares Global Carbon Transformation ETF (KGHG).
“The promise of carbon capture gained attention in 2022 as global coal use expanded during the energy crisis and Russia reduced its production of natural gas,” wrote Morningstar analyst Sara Silano. “Coal contains more carbon than oil or gas and is the global energy system’s largest single source of carbon dioxide emissions by far. According to the International Energy Agency estimates, it rose by 1.2% in 2022, surpassing 8 billion tons in a single year for the first time in history.”
KGHG, which turned a year old last month, is an interesting play on the carbon-capture theme, because the actively managed ETF focuses on companies that often sport large carbon footprints, but are transitioning away from that past.
Many KGHG holdings reside in notoriously carbon-intensive industries. Several of the fund’s top 10 holdings are integrated oil giants. However, that trait isn’t as negative as investors may be inclined to think at first glance. If anything, traditional fossil fuels producers, among other KGHG holdings, have the resources and unique insight to advance carbon-reducing and carbon-capture technologies.
Additionally, some of the large-cap energy producers on KGHG’s roster are venture investors in smaller carbon-capture companies or could eventually be credible suitors for such firms. Plus, KGHG could be an ideal mousetrap for investors looking for exposure to a still nascent clean energy theme.
“Investors interested in the future technologies for reducing greenhouse gas emissions and transitioning to a low-carbon environment can look to clean energy and clean tech mutual funds and exchange-traded funds, which invest in companies that contribute to or facilitate the clean energy transition,” concluded Silano. “This includes renewable energies such as wind, solar, hydroelectric, wave, and geothermal power along, with grid infrastructure improvements, transmission and distribution, energy storage, and innovative technologies such as carbon capture and storage.”
KGHG has nearly 50 holdings, almost 32% of which hail from the energy sector. Industrial and utilities equities combined for 48.15% of the ETF’s weight at the end of the first quarter.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.