(Bloomberg) -- The latest clean energy ETFs to hit the market are looking to promote companies doing the most to avoid carbon emissions.
iClima, a female-led fintech, is launching the exchange-traded funds Wednesday, fresh off the debut of similar funds in the U.K. where the firm is based.
Whereas many “green” investment portfolios can follow a “do less harm” mantra -- where major polluters are simply omitted -- iClima’s funds will instead seek to “do more good,” according to the company’s founders. Inclusion in both the iClima Global Decarbonization Transition Leaders ETF (CLMA) and the iClima Distributed Renewable Energy Transition Leaders ETF (SHFT) will be based on a metric called “gigatons of potential avoided emissions,” which calculates the amount of carbon emissions avoided.
“We wanted to shift the narrative and focus on the companies where decarboniazation is a direct line item,” said Gabriela Herculano, co-founder and chief executive officer of iClima, in a phone interview.
That could be appealing for critics of the green investment landscape, who say many existing offerings are simply dressing up big tech funds as climate friendly. Even the U.S. Securities and Exchange Commission has weighed in, cautioning that some firms are mis-characterizing their products as ESG, or focused on environmental, social and governance issues. Inflows into clean-energy related ETFs are close to already surpassing last year’s $6.7 billion, according to Bloomberg Intelligence.
The iClima products, however, seem to take a strict approach. For instance, CLMA will hold 157 stocks that generate revenue from offering climate change solutions, instead of just reducing their own pollution. This includes companies in areas like green energy and transportation, water and waste improvements, and decarbonization solutions.
SHFT, with about 50 holdings, will be even more tightly focused on companies that seek to replace the current energy grid through the decentralization of the power sector, the digitalization of energy solutions and the decarbonizing of energy sources. Each fund will have a 0.65% expense ratio.
“The transition globally to a greener world is a very fast-moving transition, and these companies are the winners, they are the ones poised for growth,” said Shaila Khan Leekha, co-founder and chief operating officer of iClima. “An ETF seemed like the most democratic way to be able to provide our thinking and our product in the widest way possible.”
A look into the iClima’s current ETFs based in London gives insight into what U.S. investors can expect from the new products. The London version of CLMA counts Generac Holdings Inc., Applied Materials Inc. and Trane Technologies Plc as its top holdings and has risen 13.6% since its December introduction, compared with 16.8% for the S&P 500 during that time. iClima’s other U.K. product called the Distributed Renewable Energy UCITS ETF, or DGEN, opened last month and lists Phihong Technology Co. Ltd. and Generac as its largest stakes, followed by MYR Group Inc. and Nibe Industrier AB.
Inflows to broader ESG products have been especially strong in 2021, with more than $18 billion pouring into green ETFs less than seven months into the year. If that continues, the funds could break their annual inflow record of $31 billion set last year.
©2021 Bloomberg L.P.