Climate investing and spending surged last year, and with the help of policies such as the Inflation Reduction Act and related initiatives in Europe, more of the same is expected in the coming years.
With that, there are implications for a wide variety of investable assets, including exchange traded funds such as the Invesco ESG Nasdaq 100 ETF (QQMG). As both the U.S. and Europe aim to phase out carbon emissions by 2050 — an ambitious goal, to be sure — some QQMG member firms could play pivotal roles in accomplishing that objective. Moreover, there’s global momentum for climate investing.
“The momentum seems poised to continue in 2023 as governments, corporations, and investors increasingly accelerate the deployment of climate technologies, which offer the potential to promote energy security, affordability, and sustainability objectives,” according to McKinsey.
Home to 93 stocks, QQMG follows the Nasdaq-100 ESG Index. While it’s not a dedicated renewable energy ETF in the traditional sense, QQMG has exposure to that theme with stakes in at least one dedicated green energy firm as well as positions in a variety of semiconductor makers that produce chips used by clean tech purveyors.
Other QQMG components are prioritizing climate issues and carbon reduction. That means those firms will be both spenders and beneficiaries of those efforts as various studies indicate that companies that prioritize environmental sustainability can potentially generate upside for investors. Speaking of spending, the forecasts on that front are massive.
“The US Inflation Reduction Act (IRA), passed last year, allocates more than $370 billion in funding to mitigate climate change, while the EU Green Deal could potentially dedicate more than €1 trillion in public and private funds to the fight. Together, these measures may open up more opportunities for investors in a market that McKinsey estimates could reach $9 trillion to $12 trillion in annual investment by 2030,” added the consulting firm.
As McKinsey noted, there are myriad industry-level implications, including electric vehicles. Increased adoption of those vehicles is pertinent to QQMG investors because the ETF features exposure to a trio of EV equities, led by an almost 2% allocation to Tesla (NASDAQ: TSLA).
Further adding to the allure of QQMG as a long-term climate play is the point that many renewable energy offerings are experiencing declining prices, meaning that adoption of those technologies becomes more attractive to end users.
“Consequently, they can access large value pools. Solutions in earlier stages of development, such as grid-scale storage or hydrogen, still command green premiums. However, these have declined over the past several years, a trend that is set to continue with accelerating deployment,” concluded McKinsey.
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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.
