BetaShares will launch another sustainability-linked ETF on the ASX.
The BetaShares Climate Change Innovation ETF (ERTH) is designed to provide investors with exposure to global companies "at the forefront of tackling today's climate and environmental challenges." ERTH is expected to commence trading "in the near future," BetaShares said.
Companies included in the index that ERTH will aim to track include clean/renewable energy, green transportation, water and waste improvements, decarbonisation-enabling solutions, and sustainable products.
"The potential catastrophic impact of climate change and other environmental threats cannot be overstated," said Alex Vynokur, BetaShares CEO. "However, 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."
Companies with revenues from fossil fuel activities, and certain other negative business activities, will be excluded.
"The scale of the challenge the world faces means that innovation is called for in a range of climate- and environmentally-friendly activities," Vynokur said. "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."
BetaShares noted that the size of the response and the amount of capital needed to be spent on responding to climate change is large, citing statistics from the Energy Transitions Commission that additional investment required to achieve a global zero carbon-emissions economy by 2050 will be US$1-2 trillion p.a. As a result, the demand for products and services to deal with the climate and environmental threats is anticipated to grow strongly in the decades ahead.
BetaShares' ERTH is the second sustainability-related ETF to be announced this week. Earlier in the week, VanEck said it was finalising preparation of the Vectors Global Clean Energy ETF (ASX: CLNE), which is expected to commence trading on the ASX in coming weeks. CLNE will track the S&P Global Clean Energy Index, which has delivered a one-year total return of 116.0% as of 29 January 2021.
CLNE offers targeted exposure to the largest global companies with low carbon footprints involved in clean energy production or businesses that produce technology related to clean energy production, from both developed and emerging markets.
The index upon which CLNE is based covers sectors including biofuel and biomass energy production, technology and equipment, ethanol and fuel alcohol production, fuel cells technology and equipment, geothermal energy production, hydro electricity production, turbines and other equipment, solar energy production, photo voltaic cells and equipment, wind energy production, turbines and other equipment.
Research from Rainmaker Information found that the assets under management for ESG-themed exchange traded products (ETPs) have tripled in the last three years. Following rapid growth and some impressive performance, that proportion has tripled to 3% of the market, or 1.8 billion as at June 2020.
The growth in ESG products has outpaced the wider ETP market. The June 2020 Rainmaker Information ETP report notes that "since June 21017 the overall ETP market grew by 31% pa from $29.3 billion to $65.6 billion, Smart Beta products grew by 60% pa from $1.3 billion to $5.4 billion. ESG products meanwhile grew 76% pa from $325 million to $1.8 billion."
The ESG ETP sector is has five participants - BetaShares, Russell Investments, Vanguard, VanEck, and InvestSMART.