A variety of sectors and industries are involved in the fight against climate change, but not surprisingly, technology is one epicenter of innovation in the quest to halt rising global temperatures.
Knowing that tech is front and center in terms of solving climate change, investors should be selective when it comes to environmental, social, and governance (ESG) exchange traded funds. The Invesco ESG Nasdaq 100 ETF (QQMG) is an excellent place to start because it allocates 59.09% of its weight to tech stocks.
That’s a good starting point, but investors should dig a little deeper and understand more fully why QQMG is a credible climate change investment.
“One compelling strategy to address climate change in portfolios may at the same time offer the advantage of simplicity: Invest in steady compounders, or companies with high-quality, franchise businesses and a high return on operating capital. Not only can they compound their earnings over time, but they typically also have a low-carbon footprint,” according to Morgan Stanley research.
Home to the likes of Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and many more venerable growth companies, QQMG checks the quality box in compelling fashion, and those holdings and others have wide moat, franchise-esque business models that are hard for competitors to assail.
As is the case with many ESG and sustainability ETFs, what is excluded from the fund is almost as important as what’s included. Fortunately, QQMG’s methodology ensures its lineup’s exposures to ESG and climate controversies is low.
“Divest from companies that own fossil-fuel reserves, given their potential for significant future carbon emissions. Some might argue, however, that this fails to address current emissions across other carbon-heavy sectors that don’t directly own fossil-fuel reserves, such as utilities,” added Morgan Stanley.
QQMG features no exposure to energy, materials, and utilities stocks. Likewise, QQMG has no exposure to real estate stocks, which is meaningful because that sector is a new entrant to the fighting climate change fray, and while its credentials to that effect may change for the better over time, it’s sensible that it’s not a part of the QQMG lineup today.
Plus, some QQMG components already have attractive carbon reduction profiles by way of their everyday business models.
“Consider software and IT service providers, or consulting firms and media content companies that by definition have low total carbon footprint per unit of revenue, which is limited to their offices, data centers and staff travel,” concluded Morgan Stanley.
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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.