“Decarbonization” and “carbon neutral” aren’t just environmental, social, and governance (ESG) buzz words. Reducing carbon emissions is central to fighting climate change.
As such, more companies and governments are committing to carbon neutrality, and those efforts require big spending on products, services, and technologies to accomplish carbon reduction efforts. Fortunately for investors, there are a variety of exchange traded funds with which to play this theme, and the Goldman Sachs Future Planet Equity ETF (GSFP) is at the front of that pack.
GSFP debuted last July, and when accounting for decarbonization spending expectations, a strong case can be made that the ETF is one of the most relevant that came to market last year. In its 2022 investment ideas outlook, Goldman Sachs Assets Management (GSAM) — GSFP’s issuer — highlights the massive spending that could occur on the global decarbonization front.
“Decarbonization is one of the most urgent priorities for a sustainable global economy; the process is estimated to require roughly $56 trillion in investment,” says GSAM.
Obviously, $56 trillion is a jaw-dropping number. It’s more than 14 Apples (NASDAQ:AAPL), and it implies that the spending will be diversified and spread across an assortment of sectors and industries. While some index-based strategies will be levered to that theme, GSFP is actively managed, potentially indicating that it’s nimble and can more adequately respond to decarbonization trends than its passive rivals.
That’s something for investors to consider because being successful in sustainable investing requires more than knowing that big spending is coming.
“We expect the impact to be greatest in industries including energy, utilities, alternative energy and electrification. In addition to decarbonization, environmental sustainability also includes waste management, water management, biodiversity and the circular economy,” adds GSAM.
There’s also an element of socially responsible investing with GSFP. As has been widely documented, carbon-emitting factories are often located in lower-income areas, and the effects of climate change often fall the hardest on people who have been economically marginalized. In other words, decarbonization, if it’s properly executed, can usher in positive change for societal issues as well as environmental ones.
“Social factors, such as fair and inclusive business practices, are also considered within sustainable investing. We believe all of these factors will increasingly change corporate business models and could transform entire industries,” concludes GSAM.
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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.