iClima Earth, a London-based research firm focused on environmental impact investing, has teamed up with white-label ETF issuer HANetf to launch a fund targeting enablers of decarbonization.
The ETF provides exposure to firms offering innovative solutions that enable CO2 emissions avoidance.
The iClima Global Decarbonisation Enablers UCITS ETF (CLMA LN) is set to list on the London Stock Exchange in US dollars (CLMA LN) and pound sterling (CLMP LN) and on Deutsche Börse Xetra (ECLM GY) and Borsa Italiana (CLMA IM) in euros.
The fund will come with an expense ratio of 0.65%. Income will be capitalized within the portfolio.
The ETF’s underlying reference is the iClima Global Decarbonisation Enablers Index, a proprietary index developed by iClima Earth and independently calculated and maintained by Frankfurt-based Solactive.
According to iClima Earth, the index’s approach is unique among climate change benchmarks in that it shifts the focus from companies with low carbon emissions to the firms offering innovative solutions enabling CO2 emissions avoidance.
Gabriela Herculano, CEO of iClima Earth, said: “We are proud to announce the launch of the iClima Global Decarbonisation Enablers UCITS ETF to redefine climate change investments. This is the world’s first climate change UCITS ETF that provides exposure to companies offering products and services that enable CO2e avoidance, and quantifies the impact of those companies in meeting decarbonisation targets.
“The CLMA ETF is unique as it shifts the focus from the companies reducing their own emissions to companies offering products and services that directly enable CO2e avoidance solutions, shining a spotlight on climate change innovators.”
iClima Earth estimates that the 151 companies in the index can potentially avoid over 0.6 Gigatonnes of C02e in 2021 – studies suggest that the planet needs to avoid 4.26 Gigatonnes of new emissions in 2021 to reach the goal of limiting global warming to 1.5 degrees Celsius
Constituents are selected from a universe of stocks listed in developed markets and selected emerging markets, excluding China. Eligible firms must have market capitalizations greater than $200 million.
The methodology harnesses insights from iClima Earth to identify companies classified into one of five sub-sectors: green energy, green transportation, water and waste improvements, enabling solutions, and sustainable products. Additionally, to be eligible for selection a firm must provide products and services that enable at least one of four defined sources of CO2 emissions avoidance – direct reduction of emissions from fossil fuel burning, renewable energy generation, energy savings enabling, and carbon sequestration.
According to iClima Earth, the index captures a wide spectrum of climate change solutions with exposure to alternative fuel cells, energy storage, green finance, renewable energy assets and developers, smart grids, electric transportation, ride-sharing, pollution control, recycling centres, food solutions, and sustainable materials, buildings and forestry, among many others.
Each firm will have its revenue vetted to access the relevance of its green solutions. Generally, companies with greater than 20% green revenue exposure will be eligible for inclusion, while the index will also accept upcoming players below the 20% threshold that are experiencing double-digit growth in their green revenues.
A final screen removes companies with revenue exposure to undesirable activities that exceeds certain thresholds. This includes firms with any exposure to oil exploration or non-conventional weapons, more than 1% from coal-derived energy generation, more than 10% to the production of conventional armaments, more than 20% to nuclear energy, more than 40% to the sale of internal combustion engines, and more than 50% to natural gas.
The index, which is reconstituted and rebalanced on a semi-annual basis, uses a modified tiered equal-weighting scheme that also depends on the number of constituents in the index. Generally, however, the approach tilts moderately towards larger and more liquid firms while capping any single constituent at 2%, ensuring diversification at the stock level.
The ETF aims to capture several tailwinds including favourable regulatory developments such as the Paris Agreement and US Democratic-led Green New Deal, increasing cost efficiencies in the renewable energy sector, growing demand for electric vehicles, the expansion of the shared economy, and greater consumer interest for environmentally friendly products.
The strategy appears to have delivered results, albeit based on back-tested data. The index has gained 71.4% over the past year, as of 30 November, compared to 16.6% for the MSCI ACWI Low Carbon Index and 18.5% for the S&P 500.
Source: iClima Earth.
Nik Bienkowski, Co-CEO of HANetf, commented: “HANetf is delighted that iClima Earth choose us to help them develop and launch the world’s first decarbonisation ETF and it will be the first of many on the HANetf platform. This is a unique ETF which leans into the theme we talk about every day – limiting climate change. CLMA is unique as it allows investors to make a real impact investment via an ETF. Some climate-related ETFs have experienced exponential growth in the past 20 months and we expect this strong investor interest to continue.”