Last year, environmental, social and governance (ESG) funds packed on record assets, stoking more conversation about sustainable investing. That trend isn't just being had among smaller investors. It's taking place at the highest levels, including pensions and endowments.
With that in mind, investors should note that sustainable investing isn't the same as ESG. Rather, the former builds on the latter. That's one way of saying sustainable investing combines ESG factors with financial considerations in an effort to deliver returns that are compelling to stakeholders while having a positive impact on people and the environment.
That dual positive outcome scenario explains why more and more exchange traded funds are emphasizing sustainability. Something else that's interesting about sustainability and ETFs: This is an ideal combination for thematic investment vehicles.
A prime example of that marriage is the Global X CleanTech ETF (CTEC). CTEC, which debuted last October, already has north of $191 million in assets under management, making it one of the most successful thematic funds to come to market last year.
Exploring CTEC Relevance in a Sustainable World
CTEC, which tracks the Indxx Global CleanTech Index, offers exposure to “companies involved in renewable energy production, energy storage, smart grid implementation, residential/commercial energy efficiency, and/or the production and provision of pollution-reducing products and solutions,” according to Global X.
CTEC has many of the hallmarks of a sound renewable energy investment. For example, it's well-rounded, featuring exposure to multiple clean energy themes such as solar and wind. The fund also taps into green energy's global ecosystem as 15 countries are represented in the fund with the U.S. accounting for just 34%.
Those are the CTEC basics, but what's interesting about this fund is that the sustainable/thematic marriage can generate the superior outcomes investors are looking for when initially focusing on sustainability.
“In our opinion, one way to potentially facilitate positive environmental and social changes without sacrificing financial returns, is to approach sustainable investing through a thematic lens,” according to Global X research. “Following a sustainably-oriented theme means targeting innovative and disruptive industries that could lead to tangible improvements in certain environmental and/or social matters.”
In fact, clean tech is one of the ideal proving grounds for the benefits of sustainable and thematic investing.
“The further development and adoption of CleanTech will be essential to achieving carbon-neutrality goals and limiting emissions to acceptable levels,” notes Global X. “It will also require significant investment. A scenario presented by the International Renewable Energy Agency (IRENA) estimates that $110 trillion of cumulative global investments between 2016 and 2050 would keep the world on the right track, with about 80% of that going to clean technologies.”
Good Time for the CTEC Call
When it comes to investing, timing is important and that's a box that CTEC checks because it's one of the ETFs that's ideally positioned to benefit due to Biden Administration's ambitious clean energy agenda.
“The new climate-conscious Biden Administration and a supportive Democrat-controlled Congress will likely accelerate climate action, directing capital to CleanTech,” said Global X. “President Biden’s climate action pledge includes an ambitious $2 trillion plan that would accelerate a clean-energy transition, cut carbon emissions from the electricity sector by 2035, and achieve net-zero emissions by 2050.”
A favorable political environment coupled with rising enthusiasm for sustainable investments are factor signaling that CTEC's 26% gain over the past 90 days and $191 million in assets are more floors than ceilings.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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