Why ETFs in ESG should do well long term

By Dale Gillham. Published at Mar 26, 2021, in Market Wrap

In the last week there have been protests around Australia organised by the Extinction Rebellion, with the aim of shedding light on environmental issues in an effort to get the government to take action.

Regardless of what you think about these protests, I believe as a nation, it is important that we look after the environment - which includes individuals and organisations.

So, which companies are paving the way to support a better environment?

While there are many companies, unfortunately not all of them are listed and for those that are listed many are very small and illiquid, which makes it challenging to invest.

For example, the $8.2M capped Renu Energy (ASX: RNE), which is involved in geothermal power, has risen 115 per cent this year, yet on average less than $30,000 is traded in the stock each day, which makes it high risk.

Other stocks include $22.7M capped mpower (ASX: MPR), which is up 140 per cent and Carnegie up 150 per cent this year.

Mpower is involved in solar farms, battery storage and microgrids while Carnegie harnesses ocean energy, but like Renew Energy, both of these stocks are very illiquid, which means they are also high risk investments.

If you do want to support the environment and you like these types of investments, then you may want to invest directly.

In saying that, you need to be conservative with your expectations and the returns you will achieve; therefore, make sure whatever you invest in does not break the bank.

Alternatively, you could invest in these innovative companies through ETFs.

While I am not normally a big fan of these investments, in these specialist areas this can be an ideal way to gain broad exposure with lower risk.

You still need to do your research, as there are many ETFs ranging from environmentally responsible to ethical, sustainability and more and so you will need to ensure you are investing in the areas you want to support.

In the coming years, I expect environmental companies will gain momentum with certain companies listing, while others will attract capital raisings, takeovers, and expansion, which will be exciting to watch.

Given this, it is my expectation that ETFs that invest in this area will do well over the longer term.


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