Corporations and governments the world over have ambitious clean energy spending and net-zero goals. Those plans are admirable. They’re also expensive.
The hefty spending needed to adequately fight climate change and make good on net-zero promises carries with it an array of investment implications, plenty of which are pertinent to investors considering exchange traded funds such as the KraneShares MSCI China Clean Technology Index ETF (KGRN).
As its name implies, KGRN, which follows the MSCI China IMI Environment 10/40 Index, is a play on clean technology expansion in China. However, that’s not as limiting as it may appear to novice investors. KGRN’s China focus could be a long-term plus due to that country’s rising prominence on the global renewable energy stage and its ties to surging renewable energy expenditures.
“Based on the International Energy Agency’s latest World Energy Investment 2023 report, global investment in clean energy continues to rise and is projected to reach USD 1.7 trillion in 2023,” according to S&P Dow Jones Indices. “The difference between the investment in clean energy and fossil fuels has continued to increase, meaning we continue to see more capital invested in the clean energy space than ever before.”
Other Positives for KGRN
KGRN is a case of methodology mattering. The ETF’s underlying index mandates that member firms “derive at least 50% of their revenues from environmentally beneficial products and services,” according to KraneShares.
That mandate is relevant on multiple fronts, including China’s status as a leading exporter of renewable energy products and parts necessary to make those products. A related plus for KGRN could be the point that there’s an increasingly receptive audience for clean tech offerings.
“The G7 (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.) ministers met in Sapporo, Japan in April to discuss climate, energy and environmental issues,” added S&P Dow Jones. “At the meeting, the G7 countries agreed to collectively increase the offshore wind capacity of 150GW and increase solar photovoltaics to more than 1TW by 2030.”
Focusing on KGRN’s leverage to China, that could be a long-term catalyst in favor of the ETF. As things stand today, the country already produces more than 40% of the world’s solar power. That’s just one of example of the country’s extensive green energy efforts — a list that includes renewables accounting for 35% of generated power by 2030 and reaching net-zero three decades after that. Plus, Beijing is showing financial commitment to renewables in leading fashion, which could be another long-term catalyst for KGRN.
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