Climate Fund Choices for Investors Are Multiplying
It’s been almost a week since nearly every major world leader—even Vladimir Putin—gathered virtually to focus on the global climate crisis.
And now it seems even the banks are starting to get on the bandwagon. JPMorgan Chase & Co. and Bank of America Corp., two of the world’s biggest providers of financing to the fossil-fuel industry, have increased their commitments to sustainable and clean-energy projects. Citigroup Inc. and Morgan Stanley announced similar plans.
Meanwhile, record amounts of cash continue to flow into funds designed for climate-aware investors. The global assets under management of mutual funds and exchange-traded funds with climate change as a key theme almost tripled last year to $177 billion, according to analysts at Morningstar Inc.
In all, 76 new climate-focused funds were introduced in 2020, bringing the worldwide total to about 400 offerings. Europe remains much further along, accounting for about three-fourths of the overall market with 282 offerings (as of Dec. 31), compared with only 42 in the U.S.
With so many choices, where does that leave the average investor? Chicago-based Morningstar published a 31-page report trying to answer that question. The research firm breaks the market into five groups: low carbon, climate conscious, climate solutions, green bond and clean energy/tech.
- Low carbon funds invest in companies judged to have a relatively benign carbon footprint. DNB Global Lavkarbon, Amundi IS Equity Europe Low Carbon and TIAA-CREF Social Choice Low Carbon Equity are among the funds that fit this category.
- Climate conscious funds tilt toward companies that are better prepared for the transition to a low-carbon economy. Those include Aviva Investors Climate Transition Euro Equity, DNCA Invest Beyond Climate and Lyxor S&P Europe Paris-Aligned Climate ETF.
- Climate Solutions funds only target companies that are contributing to the transition to a low-carbon economy. Examples are Candriam SRI Equity Climate Action and Wellington Climate Strategy.
- Green bond funds invest in debt instruments that help finance clean-energy projects. Morningstar singled out LO Funds Global Climate Bond and DPAM L Bonds Climate Trends Sustainable.
- Clean energy/tech funds concentrate most of their assets in renewable energy companies, “smart-grid” distribution networks, and storage and power management technologies. Funds include First Trust Nasdaq Clean Edge Green Energy Index and RobecoSAM Smart Energy.
Other funds that might make sense for investors with an environmental bent are Hartford Climate Opportunities, Pimco Climate Bond and New Alternatives in the U.S., and Impact Environmental Leaders in Europe, said Elizabeth Stuart, a London-based analyst at Morningstar. These funds have above-average sustainability and carbon-risk scores, receive positive analyst recommendations, and hold four- or five-star Morningstar ratings.
New Alternatives Fund’s class A shares rose at an annual rate of 20.3% during the past five years, and the Hartford Climate Opportunities Fund’s class A shares climbed at an annual clip of 16.9% in the same period, compared with the 17.1% advance of the Standard & Poor’s 500 Index (including reinvested dividends).
These are funds that are “good for the climate and the wallet,” Stuart said.
Sustainable finance in brief
- Former U.S. Vice President Al Gore tells the Bloomberg Green Summit that we are in the early stages of a green revolution.
- Exxon Mobil is accused by an activist firm of distorting its emissions targets.
- Investors are pressuring corporate America with a record push for diversity.
- Citigroup projects ESG stock exchange-traded funds in the U.S. alone will boast more than $1 trillion in assets by 2030.
- The relentless flood of money into ETFs means concentration risk is rising for climate-change investing.
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