President Biden’s Green Subsidies Are An Opportunity For ESG Investors
If you spend any amount of time on Twitter, you may have noticed that “ESG” has become a bit of a dirty word, tainted by the recent wave of woke backlash. In May, Florida Governor Ron DeSantis signed into law broad anti-ESG legislation that’s been described as one of the “furthest-reaching” against sustainable investing. However, the economic realities are hard to ignore, and investors would be naïve to dismiss the opportunities ESG ETFs present. The opportunities are particularly lucrative for ESG ETFs that focus on clean energy and climate change solutions.
Green Subsidies Are The Name Of The Game
President Biden’s $370 Billion in green subsidies offer the clean energy industry a host of benefits. These subsidies are a part of the Inflation Reduction Act, signed into law on August 16th of last year. The green subsidies cover everything from 10-year incentives for wind and solar energy providers and production tax credits for nuclear power generators to subsidies of up to $85 per metric ton for carbon capture and $27 billion in funding for new zero-emission technologies.
Unsurprisingly, the EU has scaled up its own green subsidies. With global clean energy spending ramping up, there is hardly a shortage of money. These subsidies could completely alter the investment landscape.
It’s no surprise, then, that a handful of Climate Change ETFs have emerged over the last couple of years to seize the opportunity. The most notable include BlackRock’s Future Climate and Sustainable Economy ETF (NYSEARCA:BECO), JP Morgan’s Climate Change Solutions ETF (NYSEARCA:TEMP), and Strategy Shares Halt Climate Change ETF (NASDAQ:NZRO). Could investing in these ETFs prove profitable for investors?
Clean Energy Isn’t Cheap
It’s no secret that clean energy companies often find themselves facing significant headwinds when starting out. One of the most turbulent of these headwinds is the need to secure financing to cover the high initial capital expenditure. Obtaining this financing can prove especially difficult in the face of rising market risks as lender confidence wavers. Green subsidies may help push clean energy companies across the finish line by reducing costs, freeing capital, and improving lender sentiment.
One estimate from commentators at Credit Suisse suggests that Biden’s green subsidies could create a multiplier effect that would see total public and private financing for clean energy companies reach $1.7 trillion over the next 10 years.
We’re Already Seeing The Subsidies Pay Off
First Solar (NASDAQ:FSLR), the biggest solar panel manufacturer in the United States, announced it will invest an additional $1.2 billion. The money will go towards building a new factory in the Southeast and expanding First Solar’s three existing plants in Ohio.
The news came just two days after the Inflation Reduction Act was signed into law. First Solar, which debuted on the stock exchange in 2006, has seen its stock price climb by as much as 166% over the last 12 months. The company recently announced it will also begin producing solar panels in India and will not source materials from China.
Why Invest In A Climate Change ETF
It’s no surprise that both BlackRock’s Future Climate and Sustainable Economy ETF (NYSEARCA:BECO) and Strategy Shares Halt Climate Change (NASDAQ:NZRO) hold a substantial amount of First Solar stock as part of their portfolios. The recent legislative drive for renewable energy sources like solar isn’t just a climate change issue. It’s become a matter of national security as the United States looks to become energy self-sufficient, reducing reliance on fossil fuel imports.
Solar, however, won’t be the only beneficiary of the green subsidy boom. Companies that manufacture electric vehicles and their batteries, develop clean waste management solutions, and specialise in other types of renewable energies will also be big winners.
Climate Change ETFs can provide investors with a well-balanced exposure to a broad set of companies leading the way towards the green transition.
Investors Are Spoiled For Choice
Unlike BlackRock and JP Morgan’s offerings, Strategy Shares Halt Climate Change ETF (NASDAQ:NZRO) also provides its investors with limited exposure to companies committed to net zero carbon emissions by 2030.
This means that, in addition to its clean energy investments, the NZRO ETF holds positions in Adobe (ADBE), Apple (AAPL), Microsoft (MSFT), Visa (V), and Mastercard (MA). There really aren’t any strict rules on what makes a Climate Change ETF. However, that’s not necessarily a bad thing, as investors can pick and choose the ETF whose portfolio best aligns with their own investment goals.
