3 ESG ETFs to Capture the Carbon Transition Drivers

The weeklong event is hosted by the Climate Group and centers around the Climate Pledge, an agreement which was founded three years ago by Amazon and Global Optimism and has now garnered 376 signatories from 34 countries. It’s a sign of the times as more and more companies from the public and private sector realize the importance and risks involved with climate inaction.

This is an increasing focus of companies, investors, and shareholders, and there are several ETFs that focus on the idea of companies making meaningful transitions to reduce emissions. Three examples are:

1. The KraneShares Global Carbon Transformation ETF (KGHG )

• KGHG focuses on the global industries that are pushing the global transition to net-zero emissions. The fund seeks to capture the true potential within the carbon transition by focusing on companies from within industries that are traditionally some of the highest emission offenders but that are on the precipice of transitioning to renewable technologies.
• KGHG is an actively managed fund that invests globally across market caps and sectors in carbon emissions reducers that are taking active steps to reduce their carbon footprints and services or the carbon footprints of other companies. This also includes companies within the supply chain of the carbon-reducing companies. The fund utilizes proprietary, fundamental, bottom-up analysis using information disclosed by companies and third-party data.
• Top holdings include AES Corp at 3.84%*, Reliance at 3.57%, and Quanta Services Inc. at 3.39%, and KGHG has an expense ratio of 0.89%.

2. The Engine No. 1 Transform Climate ETF (NETZ )

• The strategy of NETZ is similar. It is based on the premise that just 200 companies are responsible for more than 80% of all corporate industrial emissions and that the only way to create meaningful change is to drive at the heart of the issue. Engine No. 1 is an activist investor that engages at the board level with companies to partner with them and create meaningful, measurable pathways to the carbon transition.
• NETZ is an actively managed fund that utilizes a data-driven approach that draws a direct link between a company’s social and environmental impact and its ability to generate long-term value. It focuses within the sectors that are the heaviest producers of greenhouse gas emissions, including agriculture, transportation, and energy, and is based on Engine No. 1’s fundamental analysis.
• Top holdings include General Motors Co. at 7.98%, Deere and Co. at 7.58%, and Tesla at 7.03%, and the fund has an expense ratio of 0.75%.

3. The Neuberger Berman Carbon Transition & Infrastructure ETF (NBCT )

• NBCT approaches the carbon transition from a different perspective, seeking to invest in companies that have at least 20% of their revenue or assets in infrastructure that either facilitates decarbonization or reduces greenhouse gas emissions, while also investing in infrastructure companies. All companies invested in are transitioning or focused on the utilization of low-carbon resources (including renewables and the storage and transportation of their energy), enablers of technologies that allow a transition from high-emitting to low-emitting energy sources, and those that provide carbon reduction solutions.
• The fund is actively managed and focuses within the electrical equipment, chemicals, electric utilities, independent power, renewables, and multi-utilities industries, as well as construction and engineering groups of industries. It can invest in companies that have thermal coal exposure, but such investments are subject to review and must demonstrate a clear decarbonization pathway.
• Top holdings include NextEra Energy Inc at 4.81%, Cheniere Energy Inc. at 3.82%, and Linde PLC at 3.64%, and the fund has an expense ratio of 0.55%.

*All data as of 29 September 2022.

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