Climate ETFs Are a Long-Term Play | ETF Trends

While clean energy and climate ETFs haven’t been the top performers in 2023, it’s important that investors remember they’re intended to be a long-term hold.

The energy transition will require more than $140 trillion of investment over the next 30 years, according to the International Renewable Energy Agency. It’s undeniable that the investment required to get the world on track for net-zero by 2050 is a compelling long-term opportunity.

A very constructive policy background supports climate ETFs. The segment is facing headwinds, however, particularly surrounding high interest rates.

The Federal Reserve has lifted rates to a 22-year high, causing borrowing costs to surge. Clean energy technology tends to be very interest rate sensitive.

It’s important to recognize the long-term prospects for the space. In the U.S., Congress passed the Inflation Reduction Act (IRA) of 2022, marking the country’s most significant climate legislation. The law directs at least $369 billion toward incentives encouraging the adoption of renewable energy and other low-carbon technologies.

Investors have the opportunity now to add exposure to ETFs seeking to capitalize on the energy transition while prices are still low.

Get Exposure With KraneShares Climate ETFs

The KraneShares Electric Vehicles and Future Mobility ETF (KARS) and the KraneShares Electrification Metals ETF (KMET) offer two ways to get exposure to the energy transition.

KARS’ underlying index provides exposure to companies engaged in the production of electric vehicles and/or their components. This includes issuers engaged in the electric vehicle production, autonomous driving, shared mobility, lithium and/or copper production, lithium-ion/lead acid batteries, hydrogen fuel cell manufacturing, and electric infrastructure businesses.

On the other hand, KMET’s underlying index comprises futures contracts on aluminum, copper, nickel, zinc, cobalt, and lithium. These metals are essential for the energy transition, being a component in electric vehicles, batteries, and other renewable energy infrastructure. The value of these metals should increase as global decarbonization efforts continue.

For more news, information, and analysis, visit the Climate Insights Channel.