The traditional energy sector isn’t the first place investors think of when they think of environmental, social and governance (ESG) principles, but the Alerian Energy Infrastructure ETF (ENFR) could change some minds.
Renewable energy, which includes solar, wind, geothermal, hydroelectric, and other low carbon sources, is commanding an increasing share of the energy landscape, meaning it’s not only prescient for midstream operators to move into the space, but potentially profitable, too.
ENFR tracks the Alerian Midstream Energy Select Index (CME: AMEI). ENFR acts as a type of hybrid energy infrastructure ETF, which could help investors capture some of the high yields from MLPs but limits the tax hit from solely owning MLPs. Importantly, many midstream MLPs and energy infrastructure companies are looking to bolster their renewables exposure.
“One of the most popular trends in investing over the last few years has been the rise of environmental, social, and governance (ESG) investment considerations,” writes Alerian analyst Bryce Bingham in a recent note. “Energy infrastructure may not be the first sector that comes to mind when thinking of ESG-friendly investments, but the adoption of sustainability reporting is becoming more commonplace among midstream companies. Although midstream certainly still has a way to go in its efforts to cater to ESG considerations, there have been notable improvements in the last year alone.”
ENFR Meets ESG
ENFR acts as a type of hybrid energy infrastructure ETF, which could help investors capture some of the high yields from MLPs but limits the tax hit from solely owning MLPs. Moreover, many traditional MLP funds don’t provide adequate renewables exposure, but ENFR is changing that conversation.
“With sustainability and ESG considerations increasingly on the minds of investors, ESG should similarly be a focus for midstream management teams trying to attract new investors to the space. The momentum around ESG-minded investing continues to grow, especially among younger investors, and midstream should be responsive to this trend,” notes Bingham.
Among ENFR components, there’s plenty of room for ESG growth and these companies shouldn’t hold back on that front simply because they transport oil and gas.
“Growing investor focus on ESG considerations has required companies across industries to address related concerns, including midstream. While midstream makes money by transporting, storing, and processing hydrocarbons, the nature of the business does not make ESG concerns irrelevant,” according to Bingham.
Other MLP funds include the Global X MLP ETF (NYSEArca: MLPA) and the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ).
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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.