Investors are pouring money into green funds, banking on a Joe Biden presidency in the United States for a further boost to the renewable and alternative energy industry at the expense of traditional oil and gas businesses.
Shares in solar and wind energy businesses, electric vehicle companies and environmental technology pioneers have been on the rise for months, widening their lead over fossil fuel rivals since the US presidential election on 3 November.
Even without President-elect Biden’s win, investors have been positioning for governments worldwide to enact more climate-friendly legislation. The UK, for instance, announced this week that it would ban the sale of new petrol and diesel cars and vans from 2030 to cut carbon emissions.
Data from research firm Morningstar shows that investors ploughed 1.9 billion euros (US$2.3 billion) into European renewable energy investment funds in the July-September period, 11 times the amount for the same months last year.
In contrast, European conventional energy funds tracked by Morningstar achieved third-quarter inflows of less than 115 million euros.
Globally, traditional energy funds have been haemorrhaging cash in recent years, halving assets under management here (AUM) since 2018.
Morningstar does not track U.S. alternative energy funds, but in Europe the August-September inflows to such vehicles touched their highest in at least three years, taking AUM to a record 9.8 billion euros.
That’s more than double 2018 levels.
AUM at European funds investing in oil and gas, meanwhile, dwindled to 4.85 billion euros.
Policy Shift
Investors were loading up on green energy holdings in the run-up to Biden’s victory.
Though US President Donald Trump has yet to concede the election, Biden has pledged to tie the US economic recovery to tackling climate change in a significant policy shift from Trump’s easing of regulations on fossil fuel. He has also vowed to rejoin the Paris climate accord that Trump exited.
October energy fund flow data is not yet available, but provisional numbers suggest a big swing towards funds that claim to meet environmental, social and governance (ESG) goals, though that includes investing in conventional energy companies.
Net flows into all energy funds deemed ESG-compliant topped a record US$1.79 billion in October, against US$871 million for traditional energy funds, according to fund tracker EPFR.
The centrepiece of Biden’s climate plan is a target of net zero carbon emissions for the US economy no later than 2050.
Analysts at financial advisory firm Raymond James noted that getting there would require a dramatically different pace of decarbonisation. They warned that Republican control of the Senate would “make it difficult, if not impossible” for Biden to enact major climate reforms.
“Investors looking for such reforms will need to focus on Europe rather than the US,” they wrote.
However, many fund managers are undeterred by legislative roadblocks in Washington.
Guillaume Mascotto, head of ESG at American Century Investments, said the appeal of investing in renewable energy assets would continue irrespective of regulatory developments as understanding of the technology improves.
Steaming Ahead
The RENIXX Renewable Energy Index, which tracks the 30 largest renewable energy companies worldwide, has more than doubled in 2020, including a 9 percent gain in November.
The S&P500 energy sector index meanwhile is down 41 percent, hurt by a coronavirus-induced slump in oil prices.
NextEra Energy, an American renewable energy company, this month briefly overtook US oil majors Exxon Mobil and Chevron in market capitalisation after a 28 percent rise in its shares since January.
Other strong performers include Invesco’s Solar Exchange Traded Fund, up 143 percent in 2020, and First Solar, which has registered a 46 percent gain.
Among Europe’s top-performing greener energy companies are Vestas Wind Systems and EDP Renovaveis. Vestas shares have risen by 72 percent this year while Spanish renewables business EDP has gained 62 percent, lifting its market value to 15 billion euros.
