Carbon Transition Is Happening. Investors Need To Take a Position

The transition towards decarbonization is underway, but the speed and shape in which it occurs are unclear. The outcome will be determined by an intricate interplay of changing societal preferences, company strategies, capital allocation, new technologies, and governmental policies. Companies and investors need to have a view of how it’s evolving.

In the summary for a new paper from the BlackRock Investment Institute, “Managing the net zero transition,” the money manager argues that companies must determine how to overhaul how they conduct business, where to invest, and which of their operations they need to phase out. Meanwhile, investors need to choose where to allocate their capital, and how to use their shareholder votes to protect their long-term financial goals.

“Climate risk is investment risk – and will be determined by how the transition to a net zero economy unfolds,” according to BlackRock. “Economies will be reshaped as carbon emissions are cut. The transition will involve a massive reallocation of resources. Supply and demand will shift, with mismatches along the way. Value will be created and destroyed across companies.”

Launched in April, the actively managed Neuberger Berman Carbon Transition & Infrastructure ETF (NYSE Arca: NBCT) seeks to invest in companies that are focused on or are transitioning their business to focus on one or more of the following themes:

  1. Low-carbon resources: issuers focused on producing renewable energy, such as solar, wind, geothermal, and green hydrogen, and the related storage and transport of these energies.
  2. Electrification: issuers that help enable the replacement of technologies that use higher carbon-emitting fuels with those that use low-carbon resources as a source of energy, including those that support smart grid and electric vehicle-charging solutions, as well as electricity transmission and distribution that helps expand usage of low-carbon solutions.
  3. Carbon reduction solutions: issuers that directly facilitate the carbon reduction goals of infrastructure owners, including innovative raw materials, industrial gases, engineering and construction service providers, environmental services providers, and environmental technology providers.

Neuberger Berman managed $18 billion in thematic equity investments for global clients as of December 31. Its ETFs are designed to broaden access for individual investors and their advisors.

“We feel that thematic investing, which is forward-looking in nature, can benefit from the adaptable forecasting abilities of active managers,” said Neuberger Berman ETF specialist Fred Edwards.

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