Once upon a time, climate change was an issue reserved for academics, policymakers and the mainstream media, but that's a bygone era.
Amid ongoing momentum for environmental, social and governance (ESG) funds, the issue of climate change is taking centerstage in the investment universe. That trend is supported by staggering expectations for net zero spending, including a group of financial services companies with a combined $130 trillion in assets under management targeting massive spending to combat climate change.
“The group, called the United Nations Glasgow Financial Alliance for Net Zero, is made up of 450 banks, insurers and asset managers in 45 countries,” the New York Times reports. “It said the pledge amounted to a transformation of the global financial system and would help businesses, financial firms and entire industries undergo fundamental restructuring for a carbon-neutral future.”
The rub is stock picking in climate change terms isn't easy because some companies overstate their ESG credentials while others aren't yet on the climate-aware train. Fortunately, there are scores of exchange-traded funds that fit the bill as “climate change ETFs.” Here are a few to consider.
Goldman Sachs Future Planet Equity ETF (GSFP)
The Goldman Sachs Future Planet Equity ETF (GSFP) focuses on companies that are developing products and technologies to reduce greenhouse gas emissions, giving this fund ample credibility as a climate change ETF. A case can also be made that GSFP could have some inflation-fighting potency.
“Markets are betting they will raise rates well beyond that,” according to BlackRock. “We disagree, as such policies wouldn’t contain inflation without a heavy toll on growth. This is why we believe central banks will live with inflation for years to come as the world shifts to decarbonize.”
GSFP is an actively managed fund, indicating it has flexibility to be more responsive to climate change issues while capitalizing on long-term spending trends in this space.
“We expect the transition to reach net-zero carbon emissions by 2050 to transform the macro environment,” notes BlackRock. “Will it hurt growth or be inflationary? Compared with the past, yes. But we believe the rear-view mirror is irrelevant for what’s ahead. Climate change is here. An orderly transition should boost growth and mitigate inflation versus no climate action or an eventual rush to decarbonize, in our view.”
ALPS Clean Energy ETF (ACES)
The ALPS Clean Energy ETF (ACES) is an ideal climate change ETF because it addresses multiple renewable energy concepts. It's also an ideal way to play trends in the “repricing” of green assets, a theme that has plenty of long-term legs.
“Capital and investments would start to flow to more sustainable assets and away from less sustainable ones,” notes BlackRock. “We argued that this would cause a repricing over time as we believed markets would get ahead of the actual transition to a greener world. Our new analysis shows the repricing effect is real and growing, as it was negligible in the period 2016-2019.”
ACES is also positioned to benefit on another front. While renewable energy spending is increasing, it's not rising as fast fossil fuel expenditures are declining. As those scenarios come more inline, with the former rising even more, ACES could payoff for patient investors.
Goldman Sachs Bloomberg Clean Energy Equity ETF (GCLN)
The Goldman Sachs Bloomberg Clean Energy Equity ETF (GCLN) debuted earlier this month, making it a new though credible entrant to the climate change ETF fray.
GCLN, which tracks the Bloomberg GS Global Clean Energy Index, is an attractive avenue for playing emerging trends in clean energy, including purveyors of these concepts adding more value. As IHS Markit notes in a new report, costs are declining and the time is now to enhance the value proposition.
“Financiers and investors also value investments in renewables as a step to meet climate commitments and de-risk portfolios,” says IHS Markit. “The consolidated banking experience with renewables, alongside a strong push for green financing, has also brought down the cost of capital for renewable power projects.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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