Sustainable and carbon neutral funds

Do you want to invest for a better future?

What does sustainable and Carbon neutral mean?

Carbon neutrality is the equivalent of a net result of zero emissions. Companies, processes and products become carbon neutral when they calculate their carbon emissions and compensate for what they have produced via carbon offsetting projects.
Carbon offsetting is described as an important step in holistic climate action. Carbon offsetting can be applied with the addition of avoidance and reduction of carbon emictions.

Sustainability refers to the ability of something to maintain or “sustain” itself over time, in the context of business and policy
the limits of sustainability are determined by physical and natural resources, environmental degradation and social resources.
Many sustainability reports put emphasis on the ability in the future to perform, expand and how the business practice will affect humans, the economy and ecology.

There are typically 3 pillars for sustainability, economic, environmental and social.
Economic sustainability focuses on the natural resources that are used for economic inputs.
Environmental sustainability focuses on the affects on surrounding are of business practices and the life system for plants, animals and the such.
Social sustainability focuses on the affects on the human effects to the economic system, for example inequality.
The idea of sustainability is to meet our own needs without compromising the ability of future generations to meet their own needs.

Sustainable and carbon neutral energy sources

How do sustainably funds/ETFs fit into this?

Now we have a basic understanding of what sustainable and carbon neutral mean lets look into how this relates to sustainable funds.
For these funds they create criteria to help pick investments which suit this sustainability idea. Typically they use the Environments, Social & Corporate Governance (ESG) criteria
to evaluate investments and their impact on the economy, environment and socially.
Stocks which go through ESG analysis come out with a ESG score with the explicit aim of creating a measurable social impact.

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Check out this post to see what ESG investing is and how they work out the scores:

Typically you will find these types of ESG/sustainable funds wont invest into Sin stocks or Vice stocks.
These Sin/Vice stocks or sectors are such like tobacco, gambling or weapons/arms companies.
These sectors are viewed to have a negative impact towards the social aspect of ESG.

Top 10 ESG companies

Rank Company Symbol Industry Score
1 Microsoft MSFT 76.3
2 Linde Lin 76.00
3 Accenture ACN 75.95
4 J.B. Hunt JBHT 75.95
5 Xylem XYL 73.89
6 Texas Instruments TXN 73.14
7 SalesForce.com CRM 72.92
8 Gildan Activewear GIL 72.84
9 Metroplitan Bank MCB 72.68
10 IHS Markit INFO 72.60

100 Best ESG Companies: Top Stocks For Environmental, Social And Governance Values

ESG & Sustainable funds have grew by 80% between the end of 2020 and September 2021, up from 4,153 to 7,486 different funds.
Having so many funds wont make it easy to pick which one suits you but you will find that some are passive while others are active.
The difference between these are typically the on-going charge these different funds cost.

With such a rise the amount of global sustainable fund assets also reached a new high of $3.9 trillion, this is also up from 2020 which has asset under management (AUM) of $1.65 trillion.
https://sustainfi.com/articles/investing/esg-statistics/

Not all ESG/Sustainable funds are made the same. We know that funds & ETFs use a benchmark to compare performance to.
The same can be found with these types of funds. You can find there to be many types of benchmarks which all aim for different goals.
For example MSCI have 9 different benchmarks which focus on different methodologies they are designed to achieve.
Some aim for a simple Climate Paris index where the positions within the fund are picked if they are aligned to the Paris Climate Agreement while on the other end of the scale we have
a benchmark which focuses on Global Environment & Women’s leadership.
https://www.msci.com/our-solutions/indexes/esg-indexes

Fun fact the first ESG index was the MSCI’s KLD 400 Index which is the longest running ESG index with 30 years of history.

Looking through the index families using Justetf.com there are 15 different indexes but only MSCI SRI exclude all 10 factors.
These factors are: UN Global Compact, Controversial Weapons, Conventual Weapons, Nuclear Power, Un-conventual Oil & Gas Explorations, Thermal Coal, Alcohol, Tobacco, Gambling, Pornography & GMOs.
https://www.justetf.com/uk/how-to/invest-in-social-responsibility-europe.html

Time to change the world with ESG funds

Looking into MSCI SRI indicie is based on:
based on their respective regional parent index
best-in-class approach – the indices select the 25% highest ESG-rated companies in each sector of the parent index
excluded sectors and companies: weapons, adult entertainment, alcohol, tobacco, gambling, genetically modified organisms, nuclear power, thermal coal, non-compliance with UN Global Compact
strictest exclusion criteria of all socially responsible MSCI indices
some sub-indices feature additional selection criteria with regard to climate protection (S-Series, Low Carbon SRI Leaders, SRI Select Reduced Fossil Fuels).
weighted by float-adjusted market capitalisation.

Using MSCI SRI as the index there are 44 ETFs/Funds which use this as a benchmark or which 3 are UK hedged, the currency of the fund.

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iShares MSCI World SRI UCITS ETF GBP Hedged (Dist)

Total expense ratio 0.23%
Top 10 holdings – 27.93% representation
MSFT 4.47%
TSLA 4.39%
NVDA 4.20%
HD 3.08%
ASML 2.37%
ROG 2.07%
DIS 2.02%
CSCO 1.91%
KO 1.72%
PEP 1.70%
Countries
US 58.66%
Japan 7.13%
Switzerland 4.44%
Canada 4.36%
Other 25.41%
https://www.justetf.com/uk/etf-profile.html?query=MSCI++SRI&assetClass=class-equity&sustainable=true&groupField=none&equityStrategy=Social%2B%2F%2BEnvironmental&region=World&sortField=fundCurrency&sortOrder=asc&from=search&isin=IE00BMZ17T93#overview

USB ETF MSCI ACWI Socially Responsible UCITS ETF GBP Hedged (Dist)

Total expense ratio 0.33%
Top 10 holdings – 28.02% representation
MSFT 5.02%
TSLA 4.63%
NVDA 4.27%
TSM 3.18%
HD 2.55%
ASML 1.93%
ROG 1.69%
DIS 1.63%
ADBE 1.57%
CSCO 1.55%
Countries
US 56.23%
Japan 5.85%
Taiwan 4.16%
Canada 3.46%
Other 30.30%
https://www.justetf.com/uk/etf-profile.html?query=MSCI++SRI&assetClass=class-equity&sustainable=true&groupField=none&equityStrategy=Social%2B%2F%2BEnvironmental&region=World&sortField=fundCurrency&sortOrder=asc&from=search&isin=IE00BDR55B48#overview

UBS ETF MSCI World Socially Responsible UCITS ETF GBP Hedged (Dist)

Total expense ratio 0.27%
Top 10 holdings – 28.22% representation
MSFT 4.95%
NVDA 4.60%
TSLA 4.57%
HD 2.90%
ASML 2.20%
ROG 1.93%
DIS 1.63%
ADBE 1.79%
CSCO 1.77%
CRM 1.65%
Countries
US 63.53%
Japan 6.62%
Canada 3.88%
Germany 3.29%
Other 22.68%
https://www.justetf.com/uk/etf-profile.html?query=MSCI++SRI&assetClass=class-equity&sustainable=true&groupField=none&equityStrategy=Social%2B%2F%2BEnvironmental&region=World&sortField=fundCurrency&sortOrder=asc&from=search&isin=IE00BK72HN04#overview

*All data correct as of 2022 when researched

Are you worried about the environment and global warming?

Do you know how much a carbon neutral portfolio worth €10,000 can save?
Well using data from Our World In Data you could save annually 3.5 tons of CO2e.
https://ourworldindata.org/co2-dataset-sources
How does this compare to other forms of reducing your carbon footprint?
Well lets do a little dive into the numbers.
Insulating your walls – 0.18 tons of CO2e
Recycling waste – 0.21 tons of CO2e
Avoid one European return flight – 0.32 tons of CO2e
Switch to an electric car – 1.47 tons of CO2e
Avoid one Transatlantic return flight – 1.79 tons of CO2e
Switch to plant-based diet – 1.89 tons of CO2e

Do these numbers surprise you? Having a Sustainable and carbon neutral portfolio can help if your environmentally conscious. As you can see investing your money into the right places, from a individual stand point can have a large impact.

The average per capita greenhouse gas emissions for the UK is 5.5 tons as of 2016 and has been on a downward trend.
https://ourworldindata.org/grapher/per-capita-ghg-emissions?tab=chart&country=~GBR

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