President Biden has emphasized climate change as a central component of his presidency. While renewable energy policies are necessary to reach emission targets, Europe’s rapid transition to solar and wind underscores the importance of planning. Indeed, the U.S. has seen its own spike in natural gas prices due in part to underinvestment in fossil fuels.
High energy prices could lead to a backlash against renewable energy on the part of consumers and investors. If there’s less interest in renewable projects, wind, solar, and other renewable energy, companies could see slower growth rates and margin pressure from fewer subsidies, creating a genuine risk for ESG-focused investors in these kinds of projects.
At the same time, the underinvestment in fossil fuels and the sudden spike in prices could encourage investors to abandon ESG-friendly renewable energy companies in favor of conventional energy companies. The outflow of capital from renewable energy companies could translate to a higher cost of capital and slow ESG momentum.
Despite these risks, the energy crisis could also open the door to new opportunities. For example, a revival of interest in nuclear power could reignite interest in the VanEck Uranium + Nuclear Energy ETF (NLR) and other nuclear investments. Meanwhile, demand for energy storage could help the Lithium & Battery Tech ETF (LIT) and similar themes.
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