Experts predict that the impact of climate change on everything from housing to public health will increase over time. A study from the Energy Policy Institute at the University of Chicago estimates that for every degree Fahrenheit increase in average temperatures, the cost to the U.S. economy would increase by 0.7% of GDP.
Investors looking to support companies working to mitigate climate change can look to the principles of environmental, social and governance (ESG) investing. These investors use a set of criteria to determine whether a company’s activities and goals meet the threshold of environmental responsibility, corporate citizenship and good governance.
Unsurprisingly, the performance of ESG investing varies significantly depending on the investor. Indeed, some environmentally conscious investors may not be particularly interested in how well a potential target company fulfills the social and governance components of the screen. For investors looking to simplify the process and target companies with a strong track record of positive environmental impact, three ETFs provide broad coverage: the iShares Climate Conscious & Transition MSCI USA ETF. NASDAQ: USCLXtrackers MSCI USA Climate Action Equity ETF NYSEARCA: DRYand SPDR MSCI USA Climate Paris Aligned ETF NASDAQ:NZUS. As a bonus, all three companies outperformed the S&P 500 in the year to January 2, 2025.
iShares Climate Conscious & Transition MSCI USA ETF
iShares Climate Conscious & Transition MSCI USA ETF Today
iShares Climate Conscious & Transition MSCI USA ETF
As of 01/03/2025 17:22 Eastern
- 52 week range
- $55.24
▼
$73.52
- Dividend yield
- 1.17%
- Assets under management
- $2.65 billion
USCL is not a traditional ESG-focused ETF; rather, it seeks to invest in large- and mid-cap U.S. companies that are likely to benefit from the transition to a low-carbon economy relative to their sector peers. The fund looks for companies based on current emissions levels, emissions reduction goals, green business revenues and similar metrics. Thus, companies may not focus specifically on ESG goals, but rather are well positioned to benefit from either a regulatory environment that discourages carbon emissions or a broader long-term shift in this direction.
For the year to January 2, 2025, USCL returned just over 27%. This outperformance of the broader market may be due, at least in part, to its focus on popular technology companies such as NVIDIA Corp. NASDAQ: NVDA and Meta Platforms Inc. NASDAQ: META. The fund also offers investors a very modest expense ratio of just 0.08% and a solid asset base of over $2.2 billion as of the date noted above.
Xtrackers MSCI USA Climate Action Equity ETF
Xtrackers MSCI USA Climate Action Equity ETF Today
Xtrackers MSCI USA Climate Action Equity ETF
As of 01/03/2025 16:39 Eastern
- 52 week range
- $29.04
▼
$38.69
- Dividend yield
- 1.32%
- Assets under management
- $2.43 billion
USCA targets the MSCI USA Climate Action Index, which is a broad collection of companies leading their sectors “in terms of their positioning and actions on climate change.” Although these formulations are somewhat vague, the index nevertheless provides a strong balance between market capitalization, momentum and value characteristics, and sectors. As of November 29, 2024, the index consisted of a mix of information technology (26%), financials (14%), consumer services (13%), communications services (12%) and other sectors.
The index underlying the USCA also screens companies against MSCI ESG Business Involvement scores, ensuring that companies are adhering to ESG principles. Considering the complexity of portfolio construction, USCA is a bargain for investors with an expense ratio of 0.07%. The fund has returned 27.2% over the past year and has an asset base of just under $2.4 billion as of January 2, 2025.
SPDR MSCI USA Climate Paris ETF
SPDR MSCI USA Climate Paris ETF today
SPDR MSCI USA Climate Paris ETF
As of 01/03/2025 17:22 Eastern
- 52 week range
- $26.40
▼
$34.03
- Dividend yield
- 5.39%
- Assets under management
- $2.58 million
NZUS provides investors with a broad approach to investing based on climate ideals. It aims to both increase the impact of sustainable investments, as defined by the Task Force on Climate-Related Financial Disclosures and the EU Paris Benchmark (a set of guidelines for companies on governance, strategy, risk management and other climate-related issues), and to limit exposure to transition risks associated with climate change. The target agreed with Paris is in line with the Paris Agreement, an international treaty that aims to limit the rise in global temperatures.
Like USCL and USCA, NZUS tends to target large tech players, but it has a significant bias towards large-caps, while the above funds are more evenly split between large- and mid-caps. NZUS has an annualized return of 24.3%, which just outperformed the broader market last year. Compared to other funds on this list, its asset base is much smaller: NZUS has less than $3 million in AUM as of 2 January 2025, and trading volume is significantly lower than its competitors. These factors could negatively impact liquidity and ease of trading for climate-focused investors.
Before you consider the iShares Climate Conscious & Transition MSCI USA ETF, you should hear this.
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