ESG investing is about more than solar panels and wind farms, and there are certain strategies that are emerging as the winners.
Environmental, social and governance investing, as the name suggests, covers a wide array of issues, though often the E emerges as the most popular aspect for investors.
And according to Nitesh Shah, head of commodities and macroeconomic research at Wisdom Tree Europe, with governance and social reporting standards having improved in the past decade, there is now an increasing focus on improving environmental reporting.
Shah tells FTAdviser In Focus about the latest trends in ESG investing, how Wisdom Tree decides which strategies are future-proof, and why decarbonisation will speed up after Russia's attack on Ukraine.
FTA: ESG is more than solar and wind, which strategies are emerging as the winners?
NS: ESG has many dimensions. Each investor will weigh the three components in different ways.
The information gap on the environmental side is so large at the moment, investors are very eager to gain exposure to strategies that provide solutions to environmental concerns.
That is not limited to wind and solar. There is an entire ecosystem of technologies that support renewable energy deployment.
For example, lithium-ion batteries are utilised for the storage of electricity produced through renewable sources and are used in vehicles powered by renewable sources.
These technologies require a charging infrastructure, distribution and transmission cabling and a viable recycling market. Through a wider lens ESG incorporates all of these.
FTA: Which strategies are you most excited about and what is Wisdom Tree doing to be a part of the energy transition story?
NS: We are excited about holistic strategies that look at the full value chain of technologies. For example, when it comes to batteries, we like strategies that give exposure to the extractors of metals and minerals used to make batteries, manufacturers of batteries, emerging applications of batteries, and the infrastructure that supports the use of batteries such as charging and recycling.
We believe the energy transition mega-trend could be metals-positive, and companies operating in the battery and renewables space may benefit. The Wisdom Tree Battery Solutions Index is an example of an index aiming to give exposure to this mega-trend through equities.
We have also developed two indices: Wisdom Tree Energy Transition Metals Commodity Index TR and Wisdom Tree Battery Metals Commodity Index TR, which focus on the underlying metals that support the energy transition and batteries mega-trends and are examples of exposure through a rolling metals futures strategy.
We also believe significant efforts towards decarbonisation can be achieved through better waste management and recycling.
Our partnership with Tortoise EcoFin, for example, looks at businesses that are capitalising on the growth of renewable fuels, recycling services, and carbon capture technologies.
