The Paris Climate Accord isn’t just an agreement between nations to fight climate change and reduce carbon emissions. It touched a new subset of sustainable investing — one that issuers of exchange traded funds eagerly provided access to.
The SPDR MSCI USA Climate Paris Aligned ETF (NZUS) is one of the premier options among Paris Climate Accord-aligned ETFs. NZUS, which debuted two months ago, follows the MSCI USA Climate Paris Aligned Index.
Investors considering NZUS should evaluate exactly what constitutes Paris-aligned investing. In simple terms, the Paris Climate Treaty centers around limiting global temperature increases to 2 degrees Celsius in a bid to get temperatures back to pre-industrial levels.
“The Paris Aligned Investment Initiative (PAII) was established in May 2019 by the Institutional Investors Group on Climate Change (IIGCC). As of March 2021, the initiative has grown into a global collaboration supported by four regional investor networks – AIGCC (Asia), Ceres (North America), IIGCC (Europe) and IGCC (Australasia),” according to the Paris Aligned Investment Initiative. “118 investors representing $34 trillion in assets have engaged in the development of the Net Zero Investment Framework through the Paris Aligned Investment Initiative.”
NZUS is already proving popular with investors, as highlighted by $135.64 million in assets under management — potentially a sign that Paris-aligned investing is catching on in the broader investment community.
This style of capital allocation “approaches and methodologies that can be used to measure alignment, and transition portfolios, across different asset classes to identity best practice options for achieving alignment to Paris,” added the IIGCC. “Enable investors to understand the implications of transitioning portfolios by testing the approaches and methodologies for transition using real world portfolios to analyse financial characteristics, risks and opportunities associated with transition of portfolios.”
NZUS seizes upon an important but perhaps overlooked theme when it comes to Paris-aligned investing: Diversification matters. The ETF holds nearly 300 stocks, with tech accounting for almost a third of the fund’s weight. That hefty tech allocation could work in favor of long-term investors considering NZUS because they don’t have to make an all-in bet on the sector, but can still get ample leverage to what are now increasingly attractive tech multiples.
The fund features exposure to 10 sectors with, not surprisingly, no allocation to energy stocks. That makes sense because that sector is the epicenter of carbon emissions offenses.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.