Take an Active Approach to Investing in Carbon Transition

While there are currently many passive rules governing exposure to the megatrend of carbon transition, the rules governing this growing and constantly evolving trend are going to change over the next couple of decades. So, Neuberger Berman takes an active management approach to investing in such megatrends as decarbonization.

Neuberger Berman ETF specialist Fred Edwards explained that if one were to package the theme of, say, renewables, with a passive rule set, this would be “making a probabilistic determination on the mix of renewable energy we see in the future and those companies best positioned for that mix.” But, as Edwards noted, “nothing is yet set in stone.”

“While passive rules sets and active managers can often arrive at similar forecasts at any given time … the active manager can change their forecasts as conditions change,” he said, adding that “this theme is driven by change, and investors could benefit from a manager that can adapt to that change.”

The ETF specialist at Neuberger Berman also pointed out that that the megatrend of decarbonization is more about economics than it is about emissions.

“The process of decarbonization has economic merit that goes beyond just a call to change humanity’s impact on the environment,” Edwards said. “Here in the U.S. for example, policy pivots supporting clean energy initiatives and positive developments in technology are making renewable energy sources more economically feasible. And at a micro level, as the cost of the carbon input rises, it would follow that those less reliant on that input are likely to see incremental benefits over time.”

Launched in April, the actively managed Neuberger Berman Carbon Transition & Infrastructure ETF (NYSE Arca: NBCT) seeks to invest in companies that are focused on or are transitioning their business to focus on one or more of the following themes:

  1. Low-carbon resources — issuers focused on producing renewable energy, such as solar, wind, geothermal, and green hydrogen, and the related storage and transport of these energies.
  2. Electrification — issuers that help enable the replacement of technologies that use higher carbon-emitting fuels with those that use low-carbon resources as a source of energy, including those that support smart grid and electric vehicle-charging solutions, as well as electricity transmission and distribution that helps expand usage of low-carbon solutions.
  3. Carbon reduction solutions — issuers that directly facilitate the carbon reduction goals of infrastructure owners, including innovative raw materials, industrial gases, engineering and construction service providers, environmental services providers, and environmental technology providers.

Neuberger Berman managed $18 billion in thematic equity investments for global clients as of December 31. Its ETFs are designed to broaden access for individual investors and their advisors.

“We feel that thematic investing, which is forward looking in nature, can benefit from the adaptable forecasting abilities of active managers,” Edwards said.

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