Earth Day: an opportunity to rethink your green investment strategy

Today is Earth Day, the day that we show our support to the protection of the environment. We thought you might want to celebrate by looking at how you could make your portfolio just a little greener! Actually, it is quite straightforward.

Key takeaways about Earth Day and green ETFs

  • Earth Day is an annual event designed to drive action on the environment and climate crisis around the world.
  • ESG ETFs have seen increasing inflows in recent years, but it is not always clear if the fund is really free of companies harmful to our environment.
  • The Fossil Free Funds website offers a tool to help investors determine the real ESG quality of mutual funds and ETFs.
  • Another way to look for ESG investment is to examine the list of holdings in these ETFs, for investors wanting a more targeted strategy.

 

Earth day and the willingness to go green

Today is Earth Day, the official worldwide event to demonstrate support for environmental protection. Since its first edition in 1970, Earth Day keeps growing in popularity, promoting clean living and the protection of a sustainable habitat for people and the wildlife alike. This day is a yearly reminder of how fragile our planet is, and how we are the only ones responsible for it.

With the ice melting and see levels rising, endangered species disappearing and the temperature getting out of control, more and more investors are starting to get concerned about the sustainability of their investments. Over the years, tens of billions of dollars have flowed into the ESG (Environmental, Social and Governance) and sustainable space.

When unsure about which stock to pick, an ETF (Exchange-Traded Fund) is generally a valid alternative to enter an already diversified instrument.

However, it is interesting to see that many ESG ETFs today have some exposure to fossil fuel users as well as heavy carbon emitters. With that in mind, the question arises: how can a careful investor select the best earth-friendly ETFs? With so much greenwashing, it is sometimes hard to decide which instrument is the right one for you. Well, there is a tool to help you with that, and we will walk you through it in this blog.

 

Fossil free funds: the website guiding you through fossil-free investing

There is a free tool provided by the Fossil Free Funds website dedicated to searching through thousands of mutual funds and ETFs, helping you to distinguish the cleanest opportunities in contrast to the instruments filled with dirty energy companies. There are also other filter functions allowing you to screen for involvement in deforestation, civilian and military weapons, tobacco, or gender equality initiatives.

Gathering data from Morningstar industry classification and third-party proprietary research, the tool helps you determine to which extent a fund or ETF is involved in activities that the green investor might want to avoid, such as coal mining, oil and gas production, fossil fuel related activities etc.

Furthermore, the database will let you know if the fund is a member of the Forum for Sustainable and Responsible Investment (USSIF), which is generally a good indicator of their concern for responsible investment decisions. A “Fossil Fuel Grade” is also assigned to every fund, ranging from A (0% fossil fuel exposure) to F as the worst grade. Each fund is also stamped with a relative carbon footprint, based on the tons of CO2 created per $1 million invested.

For those who would like to know more about the details, a specific card with grades is attached to each fund, giving you information about its involvement (or non-involvement) in the different fields we might want to avoid.

 

WisdomTree Cloud Computing Fund (WCLD)

Source: Fossil Free Funds website

It is Earth Day, let us go for the greenest we can

For our purpose, we will filter all the ETFs on the database by selecting funds with no fossil fuel exposure – elegantly graded with an A – and order them by their carbon footprint, from the smallest emitters to the biggest polluters.

This gives us the following top 10:

Fossil fuel grade A

Source: Fossil Free Funds website

 

Now that we have selected what seems to be the 10 greenest funds of the platform, we can almost be certain that little or no harm will be done with the money invested in these instruments.

 

ETF

Net assets

1-year return

WisdomTree Cloud Computing ETF

$1.34B

81.28%

VanEck Vectors BDC Incom ETF

$337M

69.99%

iShares Expanded Tech-Software Sect ETF

$5.39B

59.87%

Invesco KBW Property and Casualty Ins ETF

$226.5M

39.22%

SPDR S&P Insurance ETF

$375.4M

42.92%

iShares US Insurance ETF

$67.2M

45.89%

iShares US Financial Services ETF

$1.35B

64.23%

Virtus LifeSci Biotech Product ETF

$30.18M

18.60%

SPDR S&P Capital Markets ETF

$68.3M

83.11%

iShares US Broker-Dealers&Secs Exchs ETF

$290.7M

71.71%

 

Top 3 holdings of each ETF

Investing in an ETF is most likely the easiest way to proceed. What investors might want to do though, is to have a look at the main holdings of these top ETFs. This might give out information about eco-friendly stocks for those who would like to build a more targeted investment strategy. None of these stocks are exposed to any fossil fuel use – simply because of the 0% exposure of the ETF as a whole – and they are all responsible for little – if any – carbon emissions.

 

ETF

Top 3 holdings

WisdomTree Cloud Computing ETF 

Box Inc, Dropbox, Adobe Inc

VanEck Vectors BDC Incom ETF

 

Ares Capital Corp, Main Street Capital Corp, Hercules Capital Inc

iShares Expanded Tech-Software Sect ETF

 

Adobe Inc, Microsoft Corp., Salesforce.com

Invesco KBW Property and Casualty Ins ETF

 

Progressive Corp, Allstate Corp, The Travelers Companies Inc

SPDR S&P Insurance ETF

 

The Hartford Financial Services Group Inc., Assurant Inc., Athene Holding Ltd

iShares US Insurance ETF

 

Chubb Ltd, Progressive Corp, MetLife Inc

iShares US Financial Services ETF

JPMorgan Chase & Co, Visa Inc, Mastercard Inc

Virtus LifeSci Biotech Product ETF

 

Agios Pharmaceutical Inc, United Therapeutic Corp, BioNTech SE ADR

SPDR S&P Capital Markets ETF

 

BGC Partners Inc, MSCI Inc, BlackRock Inc

iShares US Broker-Dealers&Secs Exchs ETF

 

Morgan Stanley, Goldman Sachs Group Inc, Raymond James Financial Inc

 

As you can see there are still many options for the green investor. We hope that this article was helpful in giving you a method for your investment decisions. Happy Earth Day!

Related articles

These relative strength charts are a bad omen for tech stocks

These 2 relative strength charts are a bad omen for tech stocks

Investing Trends of CES 2021

Top 5 investing trends that came out of CES 2021

Trucking stocks in 2021: profits on the road?

Trucking stocks in 2021: profits on the road?

Rising bond yields, falling stock market: is it time to sell off my stocks?

Rising bond yields, slowing stock momentum: what to do?

bg_nwsletter