VettaFi’s vice chairman Tom Lydon discussed the Nuveen Global Net Zero Transition ETF (NTZG ) on this week’s “ETF of the Week” podcast with Chuck Jaffe of Money Life.
NTZG is an actively managed, global equity exchange-traded fund that seeks favorable long-term total return mainly through capital appreciation. The fund provides a way to capitalize on the global shift toward a net-zero goal.
Net-Zero
“Net-zero” refers to eliminating or offsetting carbon emissions, with many countries eying this target by 2050. Transitioning to the low-carbon economy will have a transformative impact on many industries. While still slow going and highly contentious, the net zero goal is slowly being adopted.
For example, in the United States, renewable energy legislation now exceeds anti-ESG legislation in quantity and scope. All 50 states provide renewable energy programs, not including the Inflation Reduction Act. Additionally, Texas is among the top five states incentivizing renewable ESG legislation.
What Can We Expect Going Forward?
Policy changes in Europe are seen as a kind of roadmap for what we may see in the U.S., potentially offering investment opportunities in the ongoing green shift. We can anticipate similar outcomes in the U.S. as additional SEC regulations come online, the DOL changes paths, and the implications of the Inflation Reduction Act become a reality.
Specifically, the Inflation Reduction Act passage enables $370 billion for energy and climate investments. Historically, green CAPEX for net zero, infrastructure, and clean water have represented around 15% of a company’s total CAPEX. Looking ahead, each year, between $3.5 and $4.5 trillion needs to be mobilized to achieve sustainable development goals by 2030.
Investments toward sustainable development goals (SDGs) will help support new green industries. Companies that address the world’s most pressing challenges are well-positioned to benefit from rising demand. Specifically, sectors that stand to outperform include battery storage, green hydrogen, energy efficiency, CCUS, renewable energy, EVs, infrastructure, and more.
Investing in companies proactively addressing the net-zero transition could lead to a portfolio that can outperform the broader market. This is a result of these companies being well-positioned for outsized financial productivity in a future state that will be increasingly reliant on renewable, more efficient energy sources.
As shown in Nuveen’s market research, investors view the transition to net zero carbon as a critical investment criterion. According to Nuveen’s Responsible Investing Survey, over one in two investors (58%) would be interested in an investment strategy if it had only investments with net zero carbon emissions. A strong majority of ESG investors (85%) agree that knowing the total carbon emissions generated by their investments would help them make portfolio allocation decisions.
Nuveen Global Net Zero Transition ETF
The fund includes a global equity portfolio that seeks favorable long-term total return while directly engaging with portfolio companies to decarbonize at a rate faster than the broader market such that it achieves “carbon net zero” well ahead of the 2050 Paris Climate Accord deadline.
Underlying companies will have to show a credible net zero plan. The plan should demonstrate reduced carbon emissions over time at a specified pace. Companies with plans will be expected to report carbon emissions to shareholders and steps taken to reduce carbon through business activities or carbon sequestration. Lastly, plans backed by capital expenditure towards activities identified as mitigating climate change provides evidence of authenticity.
Other considerations include overall carbon reduction plans, absolute carbon emissions, carbon intensity, capital expenditures towards activities to mitigate carbon, and the development of technologies that support climate mitigation. The stocks are picked based on three broad categories: Climate leaders that have committed to carbon-reduction plans validated as Paris-aligned, as well as companies with a credible intention to reduce carbon; companies providing disruptive technology that significantly supports climate mitigation; and high-carbon emitters where reduction will represent a meaningful contribution to real-world emissions decline.
