WisdomTree has expanded its thematic ETF line-up in Europe with a new fund providing exposure to companies across the global renewable energy value chain.

Solar and wind power are expected to see major investment flows within the renewable energy ecosystem over the coming decades. 

The WisdomTree Renewable Energy UCITS ETF has been listed on London Stock Exchange in US dollars (WRNW LN) and pound sterling (WREN LN) as well as on Deutsche Börse Xetra (WRNW GY) and Borsa Italiano (WRNW IM) in euros.

According to Wood Mackenzie, an energy transition research and consulting firm that has co-developed the ETF with WisdomTree, an estimated $60 trillion of capital expenditure is required by 2050 to adhere to the Paris Agreement and limit global warming to 1.5 degrees Celsius this century.

The firm notes that to hit this target, major investment flows are required within electrification and renewable energy sources, particularly solar and wind power. Emerging technologies, meanwhile, including carbon capture and storage and hydrogen at the industrial scale, will also play a critical role in decarbonizing hard-to-abate sectors as the transition evolves.

Chris Gannatti, Global Head of Research at WisdomTree, said: “The transition towards cleaner and more sustainable energy sources is our best chance of tackling climate change. Renewable energy is at the heart of this endeavour, and we see several key drivers that could propel the growth in renewable energy usage. Since the war in Ukraine, energy security has been a priority for countries as it became clear the world had to reduce its dependence on fossil fuels. This, coupled with regulatory support to meet net-zero targets by 2050 and significant cost reductions in wind and solar power production are creating a perfect storm for renewable and clean energy production.”

Methodology

The ETF delivers exposure to the renewable energy theme by tracking the proprietary WisdomTree Renewable Energy Index which selects its constituents from a universe of developed and emerging market stocks with market capitalizations greater than $250 million and average daily trading volumes above $1m.

The methodology first screens out violators of international norms and companies with business activities linked to controversial weapons, tobacco, thermal coal, and oil & gas.

Each company is also assigned a ‘Composite Risk Score’ based on its exposure to quality and momentum factors. Firms that fall in the bottom 10% when ranked by Composite Risk score are also removed from the selection pool.

Following these screening steps, the index harnesses market intelligence insights from Wood Mackenzie to identify and classify companies according to five distinct renewable energy categories: enablers, raw materials, manufacturing, application, and emerging technologies. Any company with more than 20% revenue exposure to a category (50% for the application category) is selected for inclusion in the index.

Each selected company is then assigned an ‘Intensity Rating’ based on its perceived involvement across the value chain. Intensity Ratings are derived from the firm’s revenue exposure to 32 relevant sub-sectors, while the importance of each sub-sector to the value chain is also taken into account based on size, exposure, and growth factors.

The chosen constituents are weighted according to their Intensity Ratings multiplied by a sub-sector density function (based on the number of chosen constituents within that sub-sector). Country exposure is capped at 25% (apart from the US which is capped at 50%) and individual stocks are capped at 3%.

The ETF comes with an expense ratio of 0.45% and is classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

WRNW is the fourth ETP that WisdomTree has launched that leverages Wood Mackenzie’s market intelligence and expertise. The other three funds are the WisdomTree Battery Solutions UCITS ETF (VOLT LN), the WisdomTree Energy Transition Metals (WENT LN), and the WisdomTree Battery Metals (WATT LN).