As the momentum behind climate change movement grows, investors may be beginning to trim holdings of more polluting energy sectors in favor of socially responsible investments and ETF strategies.
CNBC’s Jim Cramer recently compared oil and other fossil fuel stocks to the sigma attached to investing in tobacco companies, arguing they are in the “death knell phase”, CNBC reports.
“I’m done with fossil fuels … they’re just done. We’re starting to see divestment all over the world,” Cramer said on “Squawk Box”. “You’re seeing divestiture by a lot of different funds. It’s going to be a parade. It’s going to be a parade that says, ‘Look, these are tobacco and we’re not going to own them.’”
Big money managers are also mirroring this sentiment. For example, a few weeks back, BlackRock chief Larry Fink in his annual letter to the world’s biggest companies warned climate change will soon cause a “significant reallocation of capital.”
Consequently, BlackRock will shift its focus and put “sustainability at the center of our investment approach” from portfolio construction to new investment products that screen fossil fuels.
Investors may also be shifting into renewable or alternative energy after prolonged disappointment in the traditional fossil fuel energy sector. Chevron and Exxon both plunged on Friday after announcing weak quarterly results. Chevron missed revenue expectations and showed a dip in adjusted earnings while Exxon’s earnings per share fell below expectations. These energy companies have struggled as persistently low crude oil and natural gas prices weighed on their bottom line, causing the energy sector to underperform while the broader market rallied.
Alternatively, investors can look to the strengthening socially responsible ETFs segment to capture a growing shift in market sentiment.
For example, over the past year the Invesco WilderHill Clean Energy ETF (PBW) increased 43.1%, First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGM: QCLN) gained 37.0% and Nuveen ESG Large-Cap Growth ETF (NULG) rose 32.5%.
For more information on the renewables space, visit our renewable energy category.
