This year, during the COVID-19 lockdowns, a strange thing happened…
Take a look at the photos of New Delhi, India below.
The left photo shows pollution in April 2019. The one on the right was taken back in April 2020 – one month after the government of India ordered a full national lockdown.
The difference is like night and day. Because of the lockdown, pollution dropped, and the air became cleaner.
This phenomenon wasn’t limited to India. Across the world, energy consumption has plummeted amid the lockdowns.
The International Energy Agency (IEA) says that global oil demand will fall 8% this year. And it won’t reach pre-crisis levels again until at least 2023, IEA says.
This will have a tremendous impact on the environment. And millions of people are already taking notice.
It’s accelerating a trend that has been in motion long before the virus began spreading: renewable energy (sometimes called “clean” or “green” energy).
And for some investors, it could mean windfall profits as this movement really takes off, thanks to a boost from the lockdowns.
And with countries around the world headed into another round of lockdowns amid a second wave of coronavirus infections, we could see this clean energy trend accelerate even further.
Now, you may not agree with these developments. Regular readers know we’re not fans of government overreach.
But plenty of investors have made fortunes by putting their money into trends that they don’t agree with. Regardless of how you feel about clean energy… it’s happening. And it’s unstoppable.
So we might as well learn how we can profit…
A Trillion-Dollar Trend… And Growing
The megatrend of earth-friendly investing is here.
More and more traders are falling head over heels for companies that follow “environmental, social, and governance” (ESG) guidelines.
These companies develop sustainable technologies and govern themselves by higher environmental and community standards than the average stock.
Take clothing companies Hanesbrands and Nike. Both try to limit water usage, reduce waste, and manage their supply chains in a local, community-friendly way.
But instead of buying into these companies directly, many are turning to so-called “clean funds” to do the work for them. These funds put investors’ money into all sorts of companies, as long as they’re run sustainably.
And they’ve exploded in number and assets.
Between 2016 and 2019, the number of funds that focus on sustainable investing has surged from a few to almost 600.
Altogether, they now manage over $1 trillion.
And this industry is growing. Banks are committed to spending hundreds of billions of dollars on ESG-friendly projects. In Canada alone, banks have said they plan to invest up to $440 billion in them.
Investing giants like BlackRock, which manages over $7 trillion of assets, are removing carbon-intensive industries like coal from some of their portfolios. It’s part of a larger strategy to move away from fossil-fuel investments – and towards cleaner energy.
With all this new capital going into “clean” companies, and away from the carbon-intensive ones, tech stocks are set to benefit. Plenty of companies are working on new technologies designed to solve environmental problems and improve communities.
In fact, there’s one piece of technology in particular that’s poised to explode in popularity as the green energy wave spreads across the world…
EVs Are Going Exponential
Electric vehicles (EVs) are becoming ever more popular.
A survey done during the lockdown showed that almost one-half of respondents are considering buying an electric vehicle in the future.
Even before the lockdowns, the EV market was on target for exponential growth. By one estimate, the market will grow from about 3 million cars in 2019 to 27 million in 2030.
Right now, EVs make up about 2.6% of global car sales. One estimate predicts that percentage will soar to almost 60% by 2040.
But while mainstream investors are falling over themselves to buy Tesla, or other name-brand tech companies, there’s a more lucrative place to put your money…
A Smarter Bet Than the Mainstream
All of these big tech companies need certain resources to make their products and ensure they’ll function.
The same is true for EVs.
You see, EVs need certain “battery metals” to run.
And with the rise of the clean energy movement, companies that mine and produce these battery metals are finding it easier to get financing. Banks are more willing to lend them money because they’re ESG-friendly.
The difference is mind-blowing. One executive says that it’s up to 10 percentage points cheaper for a company that has an ESG “stamp” to finance its projects.
In other words, a “clean” company could cut its interest cost from 20% to 10%. This means that ESG-friendly businesses can take more debt and manage their interest expenses.
And as the clean trend continues, a surge in demand for EVs will translate into a surge in demand for batteries.
Which means that there will be more exploration activity. And with easier financing provided by the “clean” money, the battery sector is looking at long and sustainable growth itself.
To gain exposure, consider taking a look at the Global X Lithium & Battery Tech ETF (LIT). It holds a basket of companies across the battery industry, from mining to production. It should see steady returns as this trend kicks into high gear.
Just remember not to bet the farm on a single trade. And only risk money you can afford to lose.
Andrey Dashkov, CFA
Analyst, Casey Research