Invesco has launched a new thematic equity ETF in Europe providing exposure to companies that are driving innovation in clean energy technologies.

Gary Buxton, Head of EMEA ETFs at Invesco.

The Invesco Global Clean Energy UCITS ETF has listed on London Stock Exchange in US dollars (GCLE LN) and pound sterling (GCLX LN) and comes with an expense ratio of 0.60%.

The fund is linked to the WilderHill New Energy Global Innovation Index from California-based WilderHill, a specialist provider of sustainable indices related to the clean energy and clean ocean investment themes.

WilderHill is known for developing some of the first benchmarks in the alternative energy segment. Its flagship index, the North America-focused WilderHill Clean Energy Index, underlies the $3.1 billion Invesco WilderHill Clean Energy ETF (PBW US) in the US.

Incidentally, Invesco previously offered an ETF in Europe based on the very same WilderHill New Energy Global Innovation Index, but this fund, the PowerShares Global Clean Energy ETF, was closed down in 2017 owing to a lack of client assets. The decision to re-introduce the strategy is likely a reflection of both the current investor enthusiasm for thematic products and the increasing adoption of climate-related investment solutions.

Index methodology

The index selects its constituents from a universe of developed market stocks with market capitalizations above $100 million that also satisfy liquidity thresholds.

Using WilderHill’s proprietary analytics, the index screens for companies with innovative technologies in clean energy, renewables, decarbonization, and energy efficiency. Eligible sectors include wind, solar, biofuels, hydro, wave, tidal, geothermal, and other relevant renewable energy businesses, as well as energy conversion, storage, conservation, efficiency, and materials relating to those activities.

The methodology focuses on pure-play companies which derive at least 50% of their market value from clean energy activities. Additionally, the index may also include larger, diversified companies that derive between 10% and 50% of their market value from clean energy if the firm is already or expected to be a dominant player in a specific clean energy sector. The number of conglomerates, however, will be capped at 20% of the index’s total constituent count.

As decarbonization is a core objective of the index, the methodology removes any otherwise eligible company that has significant exposure to fossil fuels.

Constituents are equally weighted in the index which is rebalanced on a quarterly basis.

‘Urgent challenge’

Commenting on the launch, Gary Buxton, Head of EMEA ETFs at Invesco, said: “The biggest and arguably most urgent challenge facing the world is how to avoid climate catastrophe. The solution hinges on our transition to cleaner sources of energy which is a diverse and rapidly evolving space. That is why we are so excited about offering investors access to the expertise of WilderHill.”

Rob Wilder, Co-Founder of WilderHill, said: “We have seen major fundamental changes to the clean energy space since solar and wind started breaking new ground in the noughties. First of all, the largest economies in the world are now committed to net-zero carbon objectives. Second, and even more significant, we now have economically viable alternatives to fossil fuels. In fact, solar will soon be the lowest-cost source of electricity generation. But it’s more than just solar panels, wind farms, and electric cars. Decarbonization will involve greater innovation, including finding ways to store and use energy more efficiently. And this is all happening now.”

Buxton added: “We are committed to keeping investors at the forefront of ETF innovation and solutions. Tackling the environmental crisis is a key pillar in an ESG strategy, and we will continue bringing to market funds that enable investors to align their investments with their principles. Much more to come in 2021.”

Clean energy has been fertile territory for ETF product developers in Europe recently.

In November last year, LGIM introduced a global clean energy product, the L&G Clean Energy UCITS ETF (RENW LN), tracking the Solactive Clean Energy Index. It comes with an expense ratio of 0.49%. And more recently, in February, First Trust repurposed one of its smart beta ETFs into the First Trust Nasdaq Clean Edge Green Energy UCITS ETF (QCLU LN). This fund tracks the US-focused Nasdaq Clean Edge Green Energy Index and has an expense ratio of 0.60%.

The most established clean energy ETF in Europe, however, is the iShares Global Clean Energy UCITS ETF (INRG LN) which houses $5.9bn in assets and comes with an expense ratio of 0.65%. This fund tracks the S&P Global Clean Energy Index.

(As an aside, this iShares ETF held only around $120m in assets at the time Invesco decided to liquidate the PowerShares Global Clean Energy ETF.)