The ASX 200 share ‘at the sweet spot of decarbonisation’: expert

Some 80% of rare earths are still produced and treated in China.

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There aren’t a whole lot of S&P/ASX 200 Index (ASX: XJO) shares directly involved in helping to decarbonise the world.

But for investors keen on environmental, social and governance (ESG) issues, there are a few. And the top ones have delivered some outsized gains over the past year.

The ASX 200 share ‘at the sweet spot of decarbonisation’

One ASX 200 share with exposure to the global decarbonisation push with the potential to become a future decarbonisation leader is Lynas Rare Earths Ltd (ASX: LYC).

That’s according to Stephane Andre, principal of Alphinity Investment Management.

“In Australia, for the moment, most of the opportunities are really happening on the whole metals and mining side, where basically you have the extraction of the minerals, which facilitate EVs, batteries and so on,” Andre told Livewire.

Narrowing that down to a specific ASX 200 share, Andre continued:

Lynas is the one I’m proposing, which is a buy for me. It is really at the sweet spot of decarbonisation and geopolitical diversification. So when you think about decarbonisation, rare earth is really critical for wind turbines, electric vehicles and so on.

In terms of the geographical side, most rare earths, around 80%, are produced and treated in China. Lynas is the only large manufacturer or producer of rare earths outside of China. And that has value geopolitically from a more geographic diversification perspective.

Andre said Alphinity liked the ASX 200 share firstly “in terms of the outlook on rare earth, we think that the price is going to stay higher for longer. Demand is very, very strong here.”

Alphinity is also bullish on the outlook for Lynas Rare Earths production.

According to Andre:

Production-wise, we think that actually, Lynas will come out with some surprise announcements of how they can really beef up the production volume that they will be aiming for in the next five years.

How has Lynas been performing?

Lynas offers a good example of how ESG investors looking for ASX 200 shares don’t need to sacrifice returns for ethics.

While the Lynas share price has come under pressure in recent months, shares remain up 61% since this time last year. By comparison the ASX 200 has gained 4% over the 12 months.

At the current share price, Lynas has a market cap of some $8.3 billion.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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