The idea of an energy transition that moves the world away from relying on fossil fuels has the potential to continue driving capital towards industries that align with this goal – but there are hurdles in sight.  In recent years, many investment options have sprung to life as funds throughout the world have sought to ride this tailwind.  Despite the opportunities that have arisen, certain facets of energy transition investment make it likely to experience volatility in the years to come.

The ESG (Environmental, Social, Governance) trend that seemed poised to dominate discussions of environmentally friendly investing has lost much of its momentum.  In hindsight, the arbitrariness of the scoring systems that cropped up to determine the ESG-related merit of a given company, and the perverse incentives companies had to game these scores likely led to their reputation falling.

For those that do want to tailor their investments towards a clean energy revolution, there are many possible routes for achieving this, but one needs to look under the hood of any diversified funds rather than relying on some ESG score given to it.

Investing in a broad basket of different companies in the clean energy arena can be achieved through various ETFs.  These funds provide excellent places to look into which types of companies are dominating the clean energy landscape.

SPDR S&P Kensho Clean Power ETF – $CNRG

First Trust NASDAQ Clean Edge Green Energy Index Fund $QCLN

iShares Global Clean Energy ETF – $ICLN 

Source: ishares.com -$ICLN

These three funds follow indexes that give broad exposure to different sectors.  As an example, State Street Global Advisors provides a breakdown of the Sub-Industry Allocation to its 49 holdings:

Source: State Street Global Advisors -$CNRG

For those seeking a more specific investment thesis involving energy transition, there are ETFs that cater to this as well.   There are funds limited to distinct technologies, such as solar, wind, or hydrogen.  One can also invest in themes, such as carbon credits or the various metals needed for the energy transition.

Invesco Solar – $TAN 

First Trust Global Wind – $FAN

Global X Carbon Credits Strategy – $NTRL

KraneShares Global Carbon Strategy ETF – $KRBN

First Trust Smart GRID Infrastructure – $GRID

Global X Hydrogen ETF – $HYDR 

Defiance Next Gen H2 ETF – $HDRO 

Sprott Energy Transition Materials – $SETM