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ESG ETFs niche down in an effort to avoid greenwashing

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Bailey McCann writes that a growing number of thematic ESG ETFs are trying to differentiate through targeted strategies.

ESG has been a hot topic in recent weeks. Allegations of greenwashing are everywhere and there is an open debate about whether ESG ETFs really count. Despite these questions, investors seem to be sticking with the idea. New data from PwC suggests that ESG-orientated AUM could cop USD33.9 trillion by 2026.

In their most recent survey on asset and wealth management, eight out of 10 investors said that they were planning to increase their allocations to ESG products over the next two years. The survey also notes that investors are looking for differentiated ESG strategies that aren’t likely to end up with a greenwashing label and can deliver on specific objectives.

A growing handful of thematic ETFs are attempting to meet both of these objectives. In September, Impact Shares announced a partnership with Climate Vault a carbon reduction and removal solution, to neutralize the carbon emissions of the portfolio holdings of the Impact Shares Sustainable Development Goals Global Equity ETF (NYSE: SDGA).

Impact Shares claims that through the partnership Climate Vault has reduced 370 metric tons of carbon emissions, which is approximately equivalent to that generated by the portfolio holdings of SDGA. Climate Vault purchased allowances on government-regulated compliance markets and “vaulted” them — storing them within the Climate Vault accounts in these compliance markets — to prevent polluters from using them.

Climate Vault will use the monetary value of these vaulted allowances to purchase carbon dioxide removal (CDR) technology.

Another thematic fund, the Blue Horizon BNE ETF (NYSE: BNE) is designed to be a one-fund solution for investors interested in the new energy economy. The fund essentially provides broad exposure to stocks focused on the energy transition and is meant to serve as a core holding of a thematic energy transition exposure or ESG exposure.

The index of 100 companies invests around five subthemes including e-mobility; energy storage; performance materials; energy distribution and energy generation. The fund rebalances periodically around the themes in an effort to maintain diversity and also capture unique opportunities.

“We designed the fund to be one ticket solution,” says Tony Fusco, Partner and President at Blue Horizon in an interview with ETF Express. “Energy – specifically the energy transition – is a very fast-moving area and we think there is an opportunity to create a unique high conviction index that can provide diversified exposure to the energy economy.”

This week, Goldman Sachs launched its own thematic ESG ETF aligned to the Paris Agreement. The Goldman Sachs Paris-Aligned Climate World Equity UCITS ETF tracks the Solactive ISS ESG Developed Markets Paris-Aligned Benchmark USD Index.

The fund invests in global equities and is designed to meet the minimum requirements for EU Paris-Aligned benchmarks. In a statement, Goldman Sachs Asset Management said that the fund could help investors to manage climate transition risks by shifting exposure away from companies or industries that have business models that are inconsistent with a low-carbon future.

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