Look to Clean Energy ETFs as EU Pushes for Climate Change Initiatives

As European leaders meet to discuss a proposed coronavirus response package, renewable energy exchange traded fund investors are betting on increased funding for climate-related endeavors.

On Monday, the Invesco Solar ETF (NYSEArca: TAN) increased 4.0% while the broader Invesco WilderHill Clean Energy ETF (PBW) rose 2.4% and First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGM: QCLN) gained 2.4%.

Green industries and related sectors have benefited from the European Union’s ambitious plans to end harmful emissions that damage the environment by 2050, which may also be part of the bloc’s latest economic recovery plan, the Wall Street Journal reports.

EU leaders met Monday to discuss the bloc’s proposed €1.8 trillion, or $2.06 trillion, coronavirus response package, which Authorities have suggested allocating 30% of funding toward climate-related projects where all spending must comply with its goal of net-zero greenhouse-gas emissions.

However, the robust package still faces hurdles, notably from the Netherlands and other fiscally-conservative member nations.

Fund managers and market observers, though, still believe that the push to clean up Europe’s economy will inevitably lead to hundreds of billions of euros invested in renewable fuels, energy infrastructure, transportation, and construction over the next three decades.

“This isn’t about investing capital in a way that makes you feel good,” Luke Barrs, head of fundamental equity client portfolios at Goldman Sachs Asset Management in Europe, the Middle East, and Africa, told the WSJ. “This is about saying there are secular demand tailwinds.”

Barr’s Global Environmental Impact Equity Portfolio fund includes a 45% tilt toward European companies. “More of the innovations have come from Europe at this stage,” he added, pointing to government subsidies as a contributing factor.

Analysts at Goldman Sachs Group Inc. calculate that a green deal will require €7 trillion in public and private investment by 2050, with €3 trillion going to utilities, building out renewable-energy production, upgrading power networks and fitting gas plants with carbon-capture technology. Consequently, the analysts project earnings per share for European utilities will increase 7% per year through 2050.

“It’s clear: we are putting this in law, we are hitting net-zero by 2050 and we are prepared to put the money behind it,” Meike Becker, a utilities analyst at AB Bernstein, told the WSJ. “It has made investors more ready to price in the growth” in renewable-energy capacity over the next two decades.

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