Many have voiced concerns about the risks of climate change, but not a lot of people have aligned investments with concerns. With exchange traded funds, investors can gain targeted exposure to companies with a smaller impact on the global environment.
Most portfolios largely track broad stock markets and major indices, but those indices do not limit exposure to global warming concerns, reports Pauline Skypala for the Financial Times.
Specifically, major indices, like the MSCI World, Stoxx 600 and S&P 500, are overexposed to fossil fuel and petrol/diesel cars. Additionally, the indices are underexposed to renewable energy and electric cars, according to the 2° Investing Initiative.
“Indirectly, investors are betting on a scenario of 4°-5° warming,” Stan Dupre, founder and global director of 2° Investing Initiative, told the FT, adding that risks mount as the technologies of the future are being deployed outside investors’ portfolios.
Investors seeking to invest in companies that have a smaller impact on the global environment typically follow characteristics described under sound environmental, social and governance, or ESG, principles. Retail investors interested in ESG investments can also take a look at the SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) and the iShares MSCI ACWI Low Carbon Target ETF (NYSEArca: CRBN) for more socially responsible strategies.
LOWC and CRBN both target the MSCI ACWI Low Carbon Target Index, which tries to address carbon exposure by overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, compared to the broader market.