The influx of funding into ESG in recent years has been a boon for the space, but with many of the companies with top credentials already heavily invested in, diminishing returns have meant that some fund managers are swimming further into the pool to find better opportunities.
This means that some asset managers are adding companies working to decarbonize piecemeal to their portfolios, but the KraneShares Global Carbon Transformation ETF (KGHG) offers an entire fund focused on the future industry leaders in decarbonization. KGHG 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.
These companies that are set to disrupt their industries would benefit greatly from being leaders in the transition, as the cost of carbon emissions will only become more expensive, cutting into the bottom line as demand decreases for high emissions offenders. Investment into today’s offenders that are in the process of transitioning to become decarbonization leaders within their industries also offers the opportunity for greater return potential for investors.
“The traditional gold rush in ESG has been to buy the best companies, the winners, and it worked. But as more and more people were chasing the same opportunities, the performance got less and less,” Kasper Elmgreen, head of equities at French fund firm Amundi, told the Wall Street Journal. “You’re investing in companies that are already great, so how much greater can they be?”
The Return Potential for Companies Working to Decarbonize
Investing in companies that might have lower ESG ratings than some of their peers within their industry but are in the process of transitioning to lower-emissions practices typically means that shares are undervalued relative to both their earnings potential and their ESG trading premiums over time.
“If companies are positioning themselves for a sustainable future, you should see an increase in brand value, customer and employee loyalty and additional competitive advantages,” said Casey C. Clark, president and CIO at Rockefeller Asset Management.
KGHG is an actively managed fund that invests globally across market caps in sectors in carbon emissions reducers that are taking active steps to reduce their own carbon footprints or the carbon footprints of other companies. This also includes companies within the supply chain of the carbon-reducing companies and companies that are growing their businesses with others that are materially reducing carbon emissions.
The fund utilizes proprietary, fundamental, bottom-up analysis using information disclosed by companies and third-party data.
KGHG carries an expense ratio of 0.89%.
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