ESG Focus: BetaShares Launches Green ETF

This story features BETASHARES CLIMATE CHANGE INNOVATION ETF, and other companies. For more info SHARE ANALYSIS: ERTH

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
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BetaShares to launch Climate Change Innovation ETF

By Sarah Mills

This year, 2021, is being touted as the year for renewable energy and the market can expect a lot of activity in electrification and infrastructure.

So it makes sense that BetaShares is about to launch a Climate Change Innovation exchange traded fund (ETF) ((ERTH)), subject to approvals.

Just to put things in perspective, in the last eight months, the European Union has announced the EUR$1trn green deal; Biden has pledged US$5trn; the UK has committed to a net zero emissions target; and China has committed to net zero by 2060.

BetaShares chief executive officer Alex Vynokur stresses the level of impending investment in the press release:

“It is estimated that the additional investment required to achieve a global zero carbon-emissions economy by 2050 will be US$1-2 trillion (per year) … in the decades ahead."

“… these challenges also present opportunities. Our new fund will provide exposure to global companies leading the fight, and likely to benefit from what we believe is a long-term megatrend.” 

The ETF is taking a broad view of the climate change challenge and includes several sustainability themes.

ERTH will track clean/renewable energy; green transportation; water and waste improvements; decarbonisation solutions and sustainable products.

ERTH hopes to provide investors with exposure to global companies at the forefront of climate and environmental themes, and positions itself as an impact fund.

It will also exclude fossil fuels “and other negative business activities”.

Announcing the endeavour, BetaShares' Vynokur said:

“The scale of the challenge the world faces means that innovation is called for in a range of climate- and environmentally-friendly activities.

"A focus on renewable energy is essential, but the deep cuts to carbon emissions that will be required to limit global warming cannot be achieved by clean energy alone.

“That’s why ERTH will provide broader exposure to a comprehensive list of climate change solutions. This will include not only clean energy but electric vehicles, energy efficiency technologies, sustainable food, water efficiency and pollution control – in short, a broad range of solutions that directly enable the reduction or avoidance of carbon emissions. This is the essential objective if the world is to effectively address climate change.”

In terms of risk profile, BetaShares says the portfolio consists of established companies that generate the majority of their revenue from products and services that directly enable CO2 avoidance. 

The companies have a wide range of business activities, says BetaShares  

Examples include clean energy companies, electric vehicle makers, sustainable food companies and technology-oriented companies involved in batteries, energy storage, fuel cells, electrical components, etc.  We would certainly describe all of these as “impact” solutions, but they are existing solutions and do not fall into the early stage/start-up category. 

The fund will join BetaShares’ Global Sustainability Leaders ETF ((ETHI)) and Australian Sustainability Leaders ETF ((FAIR)) and the burgeoning number of ETFs hitting the market globally.

Given most of the climate change action is happening offshore, it provides Australian investors with an opportunity to participate in the action in what is shaping up to be a pivotal year. 

Given BetaShares reputation, it may also offer investors a clear opportunity to avoid greenwashing, although all will be revealed by the fund’s stock picks.

Russell Investments senior portfolio manager James Harwood offers a timely warning about the growing danger of greenwashing to investors, as the climate change theme intensifies.

“There has been a marked increase in the demand for environmental, social and governance (ESG)/sustainable style products and this trend looks set to continue,” says Harwood in an Independent Financial Adviser article.

“Unsurprisingly many firms are seeking to capture some of this growth through the launch of new products, but also rebranding of existing funds.

“This has led to concerns of “greenwashing”, which is the overstating of a product’s ESG credentials or misleading investors on how environmentally sound or ethical a fund really is.”

He advises that ESG funds should have two key features:

Negative screens or tilts – basically exclusions or underweight holdings; and positive tilts – an overweight market exposure.

As usual, the negatives include fossil fuels, alcohol and gambling; while positive tilts might include renewable energy, education or healthcare.

“Another approach is to score companies across a wide range of ESG metrics – and then overweight stocks that have the highest aggregate ESG scores,” says Harwood.

Meanwhile, he suggests that certification from the Responsible Investment Association of Australasia (RIAA) should provide advisers with a degree of comfort that the product is properly credentialed.

Harwood also emphasises the diversity within the ESG community and the need for advisers to recognise this.

“Some clients are likely to want very hard exclusions and have nil exposure to fossil fuels and mining for example. Such a client might be evaluated as being “dark green”, i.e. their ESG beliefs are very hard and take precedence over missed investment opportunities.”

Of course, funds reflect these variable appetites; and investors need to recognise this commitment level when stepping into the ESG and ETF fund market, given the clear risk-reward tilts.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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