The Heat Is On — And So Is The Creation Of New ESG Funds

The Heat Is On — And So Is The Creation Of New ESG Funds

Over the last year, unique natural phenomena — including record heat waves in Europe — have contributed to high gas prices. Heat waves brought about droughts, which have reduced the supply of water and farmland.

While these situations aren’t ideal, exchange-traded funds (ETFs) that specialize in investing in environmental, social and governance (ESG) companies offer ways to invest in climate realities, including the Deka Future Energy ESG UCITS ETF (FRA: D6RD) and the Harbor All-Weather Inflation Focus ETF HGER. These ETFs can include those like Sunrun Inc. RUN, which is a powerhouse in the U.S. solar industry.

Record Heat Waves Worldwide

Last June, Europe experienced record heat waves, which resulted in England having 40.3-degree Celsius (104 Fahrenheit) days. England has not had days like these in its recorded history. Besides England, other European countries including Spain and Portugal had forest fires that destroyed acres of land and killed several people.

Aside from Europe, other areas of the world including China and India have experienced heat waves. These areas have also experienced strong monsoons and storms in the south, resulting in record flooding. Monsoons and hurricanes are greatly strengthened by warm ocean water that continues to get warmer each year.

High Gas Prices Around The World

Besides record heat waves and other natural disasters, every country has been experiencing some of the highest gas prices in history. The average cost per gallon of gas is around $5 in the U.S. This figure is much higher in other places. For example, Hong Kong and Norway have average gas prices per gallon of $11 and $10, respectively.

To add insult to injury, a lack of oil pipelines and the war in Ukraine are pushing these record prices even higher. The costs to refine crude oil are going up, which is being passed on to the customer.

Some of the costs to refine crude oil include labor and materials for supplies like aluminum, which has seen sky-high prices since the beginning of the year. Since 2020, aluminum prices have increased from $1,500 per ton to $2,400 per ton in August 2022.

A silver lining behind these high gas prices and costs is tax incentives. Currently, California is offering tax incentives to its residents for buying electric cars and installing solar panels. For example, residents could earn a federal tax credit of up to $7,500 if they purchase electric cars.

Besides electric car tax credits, other generous solar tax benefits exist like the Federal Solar Investment Tax Credit (ITC) and the Solar Energy System Property Tax Exclusion. With the ITC, residents could earn up to a 26% tax credit on home solar systems installed by December 2022. The Property Tax Exclusion lets residents exclude the value of rooftop solar systems from property taxes.

Deka Launched New UCITS ETF Focused On Future Energy Sources In Spring 2022

The European-based Deka Future Energy ESG UCITS ETF tracks the Solactive Future Energy ESG Index, which is composed of 60 medium- to large-sized companies in industrialized countries, including China. 

Some of the companies that this ETF invests in focus on solar energy, wind power, geothermal energy and hydrogen propulsion. A few of its top holdings include U.S.-based solar firm Sunrun and Canadian renewable energy company Algonquin Power & Utilities Corp. AQN.

Like other ESG funds, this ETF excludes companies that earn significant revenues from coal, oil extraction, deep water drilling and nuclear power generation. This fund is trading at near-breakeven prices since its inception. It also has a reasonable expense ratio of 0.55%.

Other Companies Jumping On The ESG Band Wagon

Besides Deka, investment manager Harbor Capital Advisors is also capitalizing on the demand for ESG funds and recently created its Harbor Energy Transition Strategy ETF RENW.

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This ETF invests in three main commodities (copper, aluminum and silver) that are crucial in providing sustainable energy by being key materials for constructing new energy infrastructure. It also tracks the Quantix Energy Transition Index. 

Launched in July 2022, this ETF is seeing more demand and currently has $24.7 million in total assets. It’s currently trading at $23.15, which is a respectable 18.6% gain from its inception date. This fund has a higher expense ratio of 0.8%.

AAM Transformers ETF TRFM

The AAM Transformers ETF follows the Pence Transformers Index, which targets companies that are highly innovative and exhibit higher sales growth and capital expenditures (Capex) compared to their competitors. A few sample industries include self-driving cars, artificial intelligence (AI) and carbon offset alternatives.

It has exposure to domestic and international stocks, with heavy weighting in Dutch, Israeli and Chinese companies. A few of its U.S holdings include household names like Amazon.com Inc. AMZN, Tesla Inc. TSLA and Apple Inc. AAPL.

Like other ESG funds, it’s experiencing increasing demand and has $6.2 million of net assets. This fund is relatively new, having been launched in July 2022, and has already seen a 12% run-up.

Investors Are Even More Interested In ESG Companies

Record heat waves, droughts and high gas prices have led to a rise in sustainable ESG investments. Aside from profits and cash flow, investors want to support companies that help society, especially when it comes to the environment.

It is likely that ESG will continue to see more inflows, especially since younger investors in the millennials and Gen Z age range are more interested in this sector. Per a CNBC poll, one-third of millennials and 19% of Gen Z investors take ESG factors into consideration before investing. 

Related News Highlights in Alternative Investments

  • The farmland investment platform AcreTrader fully funded its $11 million Willamette River Farm offering. The latest investment posted on the platform is a timber tract in Independence County, AR, which is expected to produce a 4.3% cash yield to investors over the target hold period of 5-10 years.
  • The Bezos-backed real estate investment platform Arrived Homes launched a new batch of offerings to allow retail investors to purchase shares of single-family rental homes with a minimum investment of $100. The platform has already funded over 150 properties with a total value of over $50 million. 
  • The CalTier Multi-Family Portfolio Fund recently completed a new investment in a portfolio of four multi-family properties consisting of 185 units. The CalTier Multi-Family Portfolio Fund is one of the few non-traded real estate funds available to non-accredited investors and has a minimum investment of $500. Year to date, the fund has produced an annualized cash-on-cash return of 7.02%.

Find more current offerings and news on Benzinga Alternative Investments

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Posted In: Alternative investmentsESGMarketsETFs
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