There are plenty of exchange traded funds on the market today advertising environmental, social, and governance (ESG) credentials, but not all members of that group are adequately levered to the low-carbon transition.
One that escapes this shortcoming is the newly minted SPDR MSCI USA Climate Paris Aligned ETF (NZUS). Along with the SPDR MSCI ACWI Climate Paris Aligned ETF (NZAC), NZUS came to market last month, and that could amount to good timing for the duo.
“Russia’s invasion of Ukraine, a tragic humanitarian crisis in its own right, has clearly exacerbated global geopolitical tensions and economic uncertainty,” according to BlackRock research. “The market impact has been most severe within the energy sector, driving price spikes and raising questions surrounding the impact on long-term climate goals. This near-term shift in sentiment is taking place alongside the structural transition to a low-carbon economy – adding a layer of complexity for investors to navigate.”
NZUS tracks the MSCI USA Climate Paris Aligned Index and focuses on companies that are engaged in addressing the risks of climate change and the low-carbon transition. A primary objective of the MSCI USA Climate Paris Aligned Index is to exceed the standards set forth by the Paris-Aligned Benchmark protocols.
The relevance of NZUS increases when acknowledging the point that the low-carbon transition is gaining momentum and evolving at a rapid pace, indicating that investors should be prepared for a changing net-zero investment landscape.
“The transition to a low-carbon economy (while undoubtedly complex) is well underway, with a common understanding: tomorrow’s economy will look different than it does today,” adds BlackRock. “Traditional approaches to ESG investing often focus on achieving a lower carbon footprint relative to broad indices that mirror today’s economy, not tomorrow’s. This can lead to excluding entire sectors like energy based on a narrow view of current emissions without considering the role that they play in the broader economy.”
NZUS holds 304 stocks. Regarding excluding sectors, the ETF has no exposure to the energy sector, and its weights to the materials and utilities sectors are light. As is the case with many sustainable ETFs, NZUS is heavily exposed to tech, as that sector accounts for 34.12% of the fund’s roster. Adding to the allure of NZUS is a broad-based approach that positions investors to capitalize on rapid shifts in the net-zero universe.
“Today’s multidimensional challenges expose a key shortcoming in sustainable strategies focused on reducing direct emissions relative to market indices through an exclusionary approach. In our view, a broad and forward-looking perspective is essential to capturing opportunities as the economy evolves while managing near-term sentiment swings and disruptions along the way,” concludes BlackRock.
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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.