Why invest in renewable energies?
Floods, forest fires, mass migration and the destruction of biodiversity are just some of the consequences of global warming that we are already feeling strongly. As the energy sector produces two thirds of greenhouse gases, we need to reduce emissions in this area in particular very quickly. But this is only possible if we consistently drive forward the energy transition.
Lots of money must be channelled into renewable energies (regardless of geopolitical necessities). Future-orientated energy production and promotion, as well as responsible energy management, are the order of the day. Investors can support the fight against global warming through targeted ESG investments, i.e. investments that take sustainable criteria into account.
Fund portrait: Companies, characterised by growth opportunities
The fund Raiffeisen-SmartEnergy-ESG-Equities invests specifically in companies from following areas:
renewable energy,
energy distribution (smart grids)
efficient use of energy (smart city, green buildings),
energy management (energy meets IT),
energy storage, and
transport (smart mobility).
The fund focuses on the low-carbon economy. Many of the relevant sectors are characterised by growth opportunities, which in turn increases the prospect of attractive returns. This applies to hydrogen – both, as an alternative fuel and as a long-term storage for wind and solar energy - as well as more efficient and cost-effective batteries for electric vehicles. Solar and wind energy will become even more important with the increasing dismantling of coal-fired power plants and falling production costs. Companies that operate "intelligent" energy grids or equip them with corresponding software (e.g. smart metering) are also of great interest to investors.
Furthermore, the ambitious climate targets (keywords Paris Climate Agreement or EU Green Deal) can only be achieved if investments to increase the energy efficiency of buildings are significantly expanded. Currently, for example, 35% of buildings in the EU are over 50 years old and 75% of buildings are considered energy inefficient. As part of an EU renovation campaign, more than 200 billion euro of additional investment is to be made in this area every year until 2030. Industrial and IT companies that are active in areas such as thermal insulation or electrical and digital building infrastructures can benefit from this. (Source: EU Commission)
One of the major strengths of the fund Raiffeisen SmartEnergy ESG Equities is that it takes a broad and flexible approach to the energy transition, rather than just focusing on a few companies and technologies that are particularly fashionable at the moment. There are many arguments in favour of this approach: On the one hand, this spreads the risk better and enables a good mix of cyclical (i.e. cyclically sensitive) and less cyclical companies. On the other hand, it is almost impossible to reliably predict which providers and technologies will prevail in the long term. Focussing only on a relatively small group of companies or themes would therefore miss out on a number of investment opportunities.
Many investors often overlook the fact that the same investment theme can sometimes be realised in very different ways and sometimes with better prospects of success if you look for indirect beneficiaries of a trend and also think a little "outside the box". One example of this is the solar industry. While companies undercut each other when selling solar modules and their profit margins suffer as a result, there is (still) much less competition when it comes to disposing of and recycling all these solar panels.
Focus on recycling and the circular economy
Recycling could possibly even be a more profitable and ultimately more sustainable business in the long-term than the production of solar panels or wind turbines. And it addresses to another investment topic of the fund, which is also attracting increasing media attention: circular economy. For example, there are companies that produce insulation material for energy-efficient building refurbishment to a large extent from plastic waste, from discarded PET bottles to plastic waste from the sea.
Europe: leading in investable securities
Europe is particularly committed to renewable energy, with Scandinavia clearly leading the way, as a great deal is happening on the technological side in these countries in particular. Overall, it is impressive how much renewable electricity is now being produced in European countries. And many companies are also active in this area in the USA. Asia is still lagging somewhat behind, but we can assume that this will change in the next few years and that the Asian markets will also offer attractive investment opportunities. Air pollution alone is forcing many countries to take action.
ESG investment in practice
The process of an ESG fund investment in the smart energy sector depends on the investment guidelines of the respective product. In the case of Raiffeisen SmartEnergy ESG Equities, the guidelines clearly define - among many other things - what the minimum turnover of the company in the smart energy sector must be. The fund management therefore first screens the universe in terms of turnover in this area and then applies the in-house Raiffeisen ESG Indicator*. Companies with nuclear power, coal, gas or oil production are not included in the portfolio (see Nuclear Policy). The final decision is made on the basis of a fundamental analysis in which the key business figures are the dominant factor. Careful stock selection means that investments in the fund Raiffeisen SmartEnergy ESG Equities leave a significantly lower carbon footprint than conventional energy funds.
The fund Raiffeisen-SmartEnergy-ESG-Aktien exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.
*) Explanations
ESG stands for environmental (E), social (S), and good corporate governance (G.)
Source: European Commission
Raiffeisen Kapitalanlage-Gesellschaft m.b.H. analyses companies and governments on an ongoing basis using internal and external research sources. The results of this sustainability research are combined with a comprehensive ESG rating, including an ESG risk assessment, to create the so-called Raiffeisen ESG indicator. The Raiffeisen ESG indicator is measured on a scale from 0 to 100. The assessment also takes into account the relevant sector.