Financially supporting efforts to combat global warming and environmental degradation.
The world is witnessing a significant shift towards environmental solutions, with opportunities extending beyond electric mobility and renewable energy. This transition is not only crucial for mitigating the impact of climate change but also presents a lucrative investment opportunity.
The Intergovernmental Panel on Climate Change (IPCC) has acknowledged the undeniable human influence on climate change, with global warming already having increased by 1.07 degrees Celsius between the end of the 19th century and the last decade [1]. This warming has led to more frequent extreme weather events such as heatwaves, heavy rain, or droughts [2].
In response to this urgent situation, various initiatives are underway. The European Union's "Fit for 55" climate strategy aims to reduce the EU's annual CO2 emissions by 55% by the end of the decade compared to 1990 [6]. On a global scale, national targets for climate neutrality, known as "net-zero targets", now account for two-thirds of global GDP and affect 61% of global emissions and 56% of the world's population [9].
Many companies, recognising the need for action, are observing a gradual emergence of opportunities in reducing emissions. For instance, the chemical industry could boost its margins by offering innovative products that contribute to climate neutrality [7]. Similarly, manufacturers of fast-moving consumer goods see opportunities in replacing carbon-intensive ingredients with alternatives [8].
This transition is reflected in the investment world, with a growing number of ETFs and mutual funds focusing on Environment / Climate / New Energy. These funds provide exposure to climate-focused, renewable energy, and ESG-aligned companies and bonds, offering diversified approaches to environmentally responsible investing.
Leading Environmental/Climate/New Energy ETFs
| ETF Name | Focus | Annual Fees | Key Features | |--------------------------------------------|-------------------------------------------------|-------------|-----------------------------------------------------------------------------------------------------| | iShares Global Clean Energy UCITS ETF (ICLN)| Global leaders in clean energy (solar, wind, etc.) | 0.65% | Invests in leading companies in renewable energy sectors | | Amundi MSCI New Energy ESG Screened UCITS ETF | Alternative energies and energy efficiency | 0.60% | Targets companies driving energy transition | | L&G Clean Energy UCITS ETF | Clean energy value chain actors | 0.49% | Covers a broad spectrum in the clean energy ecosystem | | Amundi S&P 500 Climate Net Zero Ambition PAB | S&P 500 companies aligned with the Paris Agreement | 0.07% | Low carbon, climate-aligned global large-cap stocks | | Lyxor S&P Eurozone Paris-Aligned Climate (PAB) | Low-carbon leaders in Eurozone | 0.20% | Europe-focused, PEA eligible | | Xtrackers MSCI World ESG UCITS ETF | Global ESG and low carbon footprint companies | 0.20% | Broad global ESG coverage | | SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX) | S&P 500 index excluding fossil fuel reserves | N/A | Tracks S&P 500 minus fossil fuel reserve companies, lower carbon footprint | | iShares Global Green Bond ETF (BGRN) | Investment-grade green bonds | N/A | Fixed income fund focused on sovereign/government green bonds | | VanEck Green Bond ETF (GRNB) | U.S. dollar-denominated green bonds | N/A | Focuses on environmental project bonds within US investments |
Top ESG Mutual Funds Focused on Environmental Themes (India examples)
| Fund Name | Fund Type | Description | |-------------------------------|-------------------|--------------------------------------------------------------------------------------------------| | Axis ESG Fund | Mutual Fund | Targets companies with sustainable ESG practices, suitable for investors comfortable with volatility | | ICICI Prudential ESG Fund | Thematic Equity | Diversified companies selected on ESG criteria aiming long-term capital appreciation | | SBI Magnum Equity ESG Fund | Thematic Equity | Provides growth through active selection of ESG-compliant companies | | Tata ESG Fund – Regular Plan | Mutual Fund | Focused on sustainable businesses, among best performing green funds in India | | SBI Magnum Global ESG Fund | Mutual Fund | Global ESG themed fund with growth orientation |
Best-Performing ESG ETFs (Global)
| Ticker | ETF Name | One-Year Performance | |--------|-------------------------------------|----------------------| | CHGX | Stance Sustainable Beta ETF | 71.86% | | CXSE | WisdomTree China ex-State-Owned Enterprises Fund | 42.12% | | FGDL | Franklin Responsibly Sourced Gold ETF | 39.02% | | RAYD | Rayliant Quantitative Developed Market Equity ETF | 26.68% | | NWLG | Nuveen Winslow Large-Cap Growth ESG ETF | 23.57% |
These funds offer a range of options for investors, from clean energy producers to broad ESG screens with low carbon footprints. Companies offering environmentally friendly products and services could potentially better position themselves in the long term.
Sources: [1] IPCC Sixth Assessment Report (AR6) [2] Climate Central [3] World Meteorological Organization [4] PGIM Fixed Income [5] Forbes [6] European Commission [7] Chemical & Engineering News [8] Food Navigator [9] United Nations Framework Convention on Climate Change (UNFCCC)
- The transition towards environmental solutions in the science community not only includes electric mobility and renewable energy, but also extends to other sectors such as the chemical industry, fast-moving consumer goods, and housing market in real-estate.
- This shift presents an opportunity for investors, with ETFs and mutual funds focusing on Environment, Climate, and New Energy offering exposure to climate-focused, renewable energy, and ESG-aligned companies and bonds.
- Examples of leading Environmental/Climate/New Energy ETFs include the iShares Global Clean Energy UCITS ETF, Amundi MSCI New Energy ESG Screened UCITS ETF, and L&G Clean Energy UCITS ETF.
- On the other hand, in emerging markets like India, mutual funds with an emphasis on Environmental, Social, and Governance (ESG) practices are gaining popularity, with options such as the Axis ESG Fund and ICICI Prudential ESG Fund providing diversified companies selected on ESG criteria for long-term capital appreciation.
