The vocabulary of the Californian gold rush era is employed to explain the differentiation in iClima Earth’s impact ESG ETF. Gabriela Herculano (pictured), CEO of the iClima Global Decarbonisation Enablers ETF, says that the firm wanted to shift the narrative to the innovators in ESG, in other words the companies that supply the shovels.
The USD45 million ETF has returned over 80 per cent in the last 12 months, invested in market segments that support companies directly implementing a transition to a low carbon economy. The products and services they represent fall within five different categories including Green Energy, Green Transportation, Sustainable Products, Enabling Solutions and Water & Waste Improvements.
Rather than investing in companies ‘doing less harm’, this ETF invests in companies at the front line of tackling climate change such as Iberdrola and Tesla. These ‘climate champions’ supply anti-carbon solutions that not only reduce carbon emissions but prevent them from being emitted in the first place.
The three founders behind iClima Earth, Herculano, Shaila Leekha and chairman, Steve Berry, have sustainability and the Wharton Business School in common. Herculano explains that she and Leekha were underwriting renewable energy investments at GE Capital when they met, and discussed the existing approach to ESG in investment.
“We felt there was a market void,” Herculano says. “There is lots of direction of travel towards investing in companies that are doing less harm and reducing their carbon footprint. We applaud those efforts but there is a limit to what they are going to be able to achieve and they are not solving anything.”
She describes a commitment to renewable energy as ‘low hanging fruit’. “These ETFs have done somewhat ok because they are in Microsoft or Google,” she says.
The team was inspired by Project Drawdown, which was initially co-founded in 2014 by Paul Hawken and Amanda Ravenhill and designed to uncover the most substantive solutions to stop climate change, and to communicate them to the world.
From 2014 to 2017, over 100 scientists examined the existing technologies that could bring the world to carbon neutrality by 2050.
“This quantified and changed everything for us,” Herculano says. “It was a tangible metric to ascertain relevance and with that element of cross fertilisation, one makes the other more relevant.”
The ETF brings the science to a granular level, putting the companies together into a portfolio of 158 names, balanced at between 0.35 and 1 per cent so no one company dominates.
“We wanted to bring to market a more comprehensive approach,” she says and notes that the ETF is getting positive feedback from institutional investors. “They see this ETF as core and are reallocating from broad low carbon ETFs to ours.”
More products are on their way, with a second ETF due in March.