3 Things to Know About Energy Transition—and How It Could Reshape Your Investment Strategy

Sponsored by What's this?

In August 2021, President Joe Biden signed an executive order that set a target for zero-emissions vehicles to make up half of new car sales in the U.S. by 2030. Electric vehicles (EVs) accounted for just 2% of new car sales in the U.S. in 2020, so there will likely be a lot of growth in sales over the next eight years—even if sales of zero-emissions vehicles fall a little short of the target.

The push to electric vehicles is only one part of Biden’s climate change agenda, with the President seeking to make the U.S. government a net-zero contributor to the climate crisis by 2050. Those efforts are mirrored by other governments and organizations around the world. According to the International Renewable Energy Agency (IRENA), investments in energy transition could total $110 trillion in global spending by 2050.

If you’re interested in aligning your portfolio with this energy transition, here are three things to know about the coming changes and how they could reshape your investment strategy.

1. Expect Increased Demand for Copper, Cobalt, Graphite, and Lithium

Clean-energy technologies are typically mineral-intensive, which could lead to surging demand for mineral inputs over the coming decades.

Consider copper: a typical EV needs 132-193 pounds of copper, compared to 33 pounds for a conventional car. According to a U.S. Geological Survey, the demand for copper from EVs and associated infrastructure could be 13-15% of 2020 global supply by 2030.

An offshore wind plant needs 13 times more mineral resources than a gas-fired power plant. The demand for cobalt, graphite, and lithium could increase by 21, 25, and 42 times, respectively, during the next decade.

2. The Energy Transition is Going to Impact Companies Across the Market

The energy transition is not only going to impact companies involved in the creation of clean energy technologies and the production of fossil fuels but also companies that are reliant on those energy sources. This shift towards sustainability is also expanding into new spaces and new sectors, including agriculture and smart resource management.

It’s also important to note that the transition will take place over a long period of time and traditional companies will need to be involved in many of the changes happening as initiatives progress and client demands change.

3. Commodity-Based Investments Could Help to Offset the Effects of Inflation

Inflation was one of the biggest stories in the market in 2021, with the 7% annual move in December 2021 being the fastest increase since June 1982.

In an inflationary market environment, real assets—including natural resources and commodities—tend to outperform stocks and bonds. It’s possible that global central banks will raise rates over the next couple of years, but highly leveraged global financial markets and high debt levels could prevent them from increasing rates enough to fight off inflation.

If there is sustained inflation, coupled with increasing demand for green metals, we could see large price increases for copper, cobalt, and lithium, as well as higher share prices on companies involved in the production of these metals. This “greenflationary” aspect should be viewed as different from traditional, monetary and fiscally driven inflation, and could linger for some time. As supply is constrained for many critical inputs and consumer demands develop, this imbalance may keep prices elevated for some time.

Consider Investing in Funds That Give You Exposure to Commodities Associated with Clean Energy

There is little doubt that the U.S. economy is going to shift towards clean energy technology over the next few decades, but it’s unclear what commodities and companies are going to be the top performers.

What if the average EV needs more copper in the future? Or a cheaper copper substitute is discovered?

Since there is no sure way of knowing what will happen, diversification is likely to be the best strategy. The VanEck Green Metals ETF and Environmental Sustainability Fund are two ways to get broad exposure to clean energy commodities and companies.

DISCLOSURES

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of 3rd party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies.

ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.

The Environmental Sustainability Fund’s sustainability strategy may result in the Fund investing in securities or industry sectors that underperform other securities or underperform the market as a whole, and may result in the Fund being unable to take advantage of certain investment opportunities, which may adversely affect investment performance. The Fund is also subject to the risk that the companies identified by the Adviser do not operate as expected when addressing sustainability issues. Regulatory changes or interpretations regarding the definitions and/or use of sustainability criteria could have a material adverse effect on the Fund’s ability to invest in accordance with its sustainability strategy.

Companies that promote positive environmental policies may not perform as well as companies that do not pursue such goals. Issuers engaged in environmentally beneficial business lines may be difficult to identify and investments in them maybe volatile. Environmentally-focused investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by the Adviser or any judgment exercised by the Adviser will reflect the opinions of any particular investor.

You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. An investment in the Fund may be subject to risks which include, among others, investing in derivatives, equity securities, emerging market securities. environmental-related securities, foreign currency transactions, foreign securities, investments in other investment companies, management, market, new fund risk, non-diversification, operational, sectors, small and medium capitalization companies, special purpose acquisition companies. Small- and medium-capitalization companies may be subject to elevated risks.

Investments in companies involved in the production, refining, processing and recycling of green metals used to facilitate the energy transition from fossil fuels to cleaner energy sources and technologies are subject to a variety of risks. Under certain market conditions, the Fund may underperform as compared to funds that invest in a broader range of investments. There may be significant differences in interpretations of what is considered a "green" metal and the definition used by the Index Provider may differ with those used by other investors, investment advisers or index providers. Additionally, there may also be a limited supply of companies involved in green metals, which may adversely affect the Fund.

An investment in the VanEck Green Metals ETF may be subject to risks which include, among others, risks related to investing in green metals, clean energy companies, regulatory action and changes in governments, rare earth and strategic metals companies, Australian, Asian issuers and Chinese issuers, investing through stock connect, foreign securities, emerging market issuers, foreign currency, basic materials sector, mining industry, small- and medium-capitalization companies, cash transactions, equity securities, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and concentration risks which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risk.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Pew Research Center. “Today’s electric vehicle market: Slow growth in U.S., faster in China, Europe, https://www.pewresearch.org/fact-tank/2021/06/07/todays-electric-vehicle-market-slow-growth-in-u-s-faster-in-china-europe/.” Accessed January 18, 2022.

  2. The Guardian, “Biden signs order for government to achieve net-zero emissions by 2050, https://www.theguardian.com/us-news/2021/dec/08/biden-signs-order-government-net-zero-emissions-2050.” January 18, 2022.

  3. International Renewable Energy Agency, “Global Renewables Outlook: Energy Transformation 2050, https://irena.org/-/media/Files/IRENA/Agency/Publication/2020/Apr/IRENA_GRO_Summary_2020.pdf. Accessed January 25,2022.

  4. CNBC, “Inflation rises 7% over the past year, highest since 1982, https://www.cnbc.com/2022/01/12/cpi-december-2021-.html.” January 18, 2022.