Tomorrow Never Dies: Bond, Renewable Bond.

Overview

Renewable energy is collected from resources naturally replenishable during the lifespan of a human, such as sunlight, wind, or rain, amongst other sources. Despite mankind’s over-reliance on it throughout most of human history, in 2018, less than 27% of global electricity was generated through the means of renewable sources,1 whilst over 80% of the electricity produced in the world’s largest economy, the US, was generated from either fossil fuel, natural gas, or nuclear energy.

Nonetheless, research shows that there is a positive correlation between renewable energy and economic growth. Namely, an increase in renewable energy consumption – both in absolute terms and relative to the countries’ overall energy mix – is correlated with an increase in overall and per capita GDP.

Therefore, it should not be surprising that investors might prefer to increase their exposure to Australia’s thriving solar energy industry, Canada and Norway’s robust hydropower infrastructure, or Germany’s notorious wind farms. This assumption would follow from market participants seeking to benefit from the economic performance of countries better suited to face the green-shift in global energy demand.

In this white paper, we attempt to construct an index of a renewable-capacity-weighted basket of sovereign bonds, and analyze its performance relative to that of a market-value-weighted one.