Private Low-Carbon Investing Still Intersecting With Public Policy

From a broad perspective, low-carbon investing remains attractive. That’s even more true today as growth stocks — the area in which many low-carbon equities dwell — are retreating this year.

That could signal opportunity with exchange traded funds such as the SPDR MSCI USA Climate Paris Aligned ETF (NZUS) and the SPDR MSCI ACWI Climate Paris Aligned ETF (NZAC). The allure of ETFs such as NZAC and NZUS is bolstered by several factors, including the time constraints associated with fighting climate change and the massive amounts of spending needed to adequately address that issue.

That underscores the point that climate and low-carbon spending is very much a public/private issue, and as such, investors mulling related strategies need to be aware of political implications, of which there are plenty.

“Decarbonization is shaping up to be the next industrial revolution—a massive shift that will lead to the decline of some industries and the rise of others, creating both risks and opportunities for investors. Even though renewable energy is now often cheaper than burning fossil fuels, the time pressure imposed by global warming means politics will be instrumental in making it happen,” reports Rochelle Toplensky for the Wall Street Journal.

NZUS, which tracks the MSCI USA Climate Paris Aligned Index, and NZAC are homes to companies that are developing products and services necessary to advance low-carbon agendas, meaning the ETFs’ member firms are poised to benefit from encouraging spending trends.

“Annual investment in physical assets will have to increase by $3.5 trillion to $9.2 trillion a year in order to decarbonize the global economy, according to estimates from consulting firm McKinsey. Only a fraction of that will come from public sources, but the incentives, goals and regulations politicians set strongly affect private investment, risks and returns,” according to the Journal.

Of course, when it comes to spending on that scale, governments are bound to be involved, introducing some element of political risk to climate/low-carbon investing. Political risks as they pertain to clean energy investing were seen in the U.S. last year as equities with the green label tumbled after the White House failed to advance the Build Back Better agenda.

Along those lines, NZAC could be a fund to consider because that ETF features exposure to more than 40 countries, some of which can more nimbly implement low-carbon spending than the U.S. can.

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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.