iClima, a climate-focused financial firm in London, wasn’t sold on the metrics that numerous data providers use to make ESG ratings when it was preparing to launch its ETFs stateside.
So, it built its own.
The iClima Global Decarbonization Transition Leaders ETF (CLMA) and the iClima Distributed Renewable Energy Transition Leaders ETF (SHFT) both launched on the NYSE Arca Wednesday, sporting expense ratios of 0.65%.
CLMA passively follows an index of global companies selected by how much emissions a company is estimated to avoid. The figure of how much emissions are avoided is determined by iClima’s in-house rating system that pulls from guidelines from the European Union’s taxonomy rules for ESG investments, and from frameworks developed by Project Drawdown and Mission Innovation.
SHFT chooses companies that focus on distributed energy production and distribution, ranging from microgrids and solar panels for buildings to electric vehicle charging technology. The idea behind distributed energy is that locally generated power is less taxing on the larger power grid and thus requires fewer emissions-generating inputs, and is more efficient because less energy is lost during the transmission of electricity from a power plant to an end user.
Both of the funds are siblings to existing iClima products that launched on the London Stock Exchange in March. SHFT’s sister fund operates under the ticker DGEN at the LSE, while CLMA has the same ticker on both exchanges.
ESG ‘Black Box’
The world is emitting an estimated 56 gigatons of carbon dioxide and equivalents annually, and the United Nations Intergovernmental Panel on Climate Change (IPCC) believes emissions need to be cut in half by 2030 to prevent global warming of higher than 1.5 degrees Celsius above pre-industrial levels.
iClima CEO Gabriela Herculano told ETF.com that her firm decided to build the carbon-avoidance metric after several talks with the current crop of data providers about how they calculate ESG ratings for companies and funds.
“We always ask everybody to walk us through how they rate Tesla, and it was a bit shocking to us that Tesla’s rating was all over the map,” she said. “It became quite clear to us that the consensus was not there, in that there was very little use for us in using an ESG black box, that we did not really understand where (the rating) was coming from.”
Herculano asserts that the 157 companies in CLMA’s portfolio companies will avoid emitting a sum of 0.6 gigatons of carbon dioxide and equivalents this year, or 14% of global emissions that need to be cut this year to keep with the IPCC’s 2030 target.