In a year that has seen ESG face some notable stumbling blocks, including rising politicization and dropoffs in flows, there are still reasons to get excited about the E side of the equation. The Biden Administration’s infrastructure plan, passed last year, is set to release tens of billions for green energy and infrastructure in the coming years, which could prompt investors to consider a sustainable infrastructure ETF like the newly-launched ClearBridge Sustainable Infrastructure ETF (INFR).
INFR, from Franklin Templeton’s specialist investment manager ClearBridge Investments, launched Friday. The actively-managed ETF begins operation with $2.5 million in AUM and is set to charge a 59 basis point fee.
ClearBridge, as a member of Franklin Templeton’s network of boutique specialist affiliates, has a long-developed focus on ESG strategies. In addition to INFR, the firm has four ESG ETFs according to VettaFi, with the largest on an AUM basis being the ClearBridge Large Cap Growth ESG ETF (LRGE) at $163 million.
According to its prospectus, INFR is set to invest at least 80% of its net assets in securities from firms working in infrastructure, defined as those companies receiving 50% or more if their assets, income, sales, or profits from things like construction, maintenance, or ownership of things like roads, ports, rail, electrical plants, and more.
The ETF plans to target firms with attractive valuations and cash flow of any size or market cap, and expects to be highly concentrated in just 25 to 50 firms from any country, as well as things like REITS or MLPs. The ETF’s managers plan to apply ClearBridge’s proprietary ESG ratings system, ranking firms 1-5 based on a firm’s five year horizon and how climate related risks and opportunities apply to a given firm.
Among the factors considered for its ESG analysis are greenhouse gas and carbon emissions, pollution and waste management policies, community relations, occupational safety, diversity, operating excellence, and more. The ETF will also aim to actively avoid firms in certain Global Industry Classification Standard (GICS) sub-industries including oil & gas storage & transportation as well as gas utilities.
With ESG facing some questions in the new year as the politicization and regulation of the space intensifies, investors may be looking for ESG opportunities with strong supporting trends. The Biden Administration’s infrastructure spending plan as well as new ESG-friendly state governments following November’s midterm elections may create an environment for a sustainable infrastructure ETF like INFR to play.
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