New Climate ETF Reflects ESG Conundrum

Veridien Global Investors launched its first exchange-traded fund, which is aimed at mitigating climate change at a time when such funds are facing backlash from politicians and investors. 

The Veridien Climate Action ETF (CLIA) fund from Darien, Connecticut-based Veridien added 2 cents to rise to $20.02 Tuesday afternoon in its first day of trading. The climate-focused investing firm is led by CEO Ariane Mahler.  

CLIA is being launched in a volatile climate for ESG products, as the market for funds aimed at climate change is cooling off despite rising global temperatures. The number of ESG ETFs peaked two years ago at 419, Bloomberg News said in a story this week. That was up from 50 in 2017, the article said.  

As Russia’s invasion of Ukraine caused oil and gas prices to spike, investors piled into the heavily polluting sector as profits jumped. Rising rates have also hurt ESG funds.  

The number of ESG funds launched in this year’s first quarter fell more than 40% to 58 from 101 in the same period last year. Existing ESG funds also saw $5.2 billion in outflows over the same period. 

However, in addition to these broader conditions, the ESG ETF market has some issues all its own. A few big problems are the often vague metrics and opaque methodology used in many ESG funds. “The ESG boom is over and that’s because there’s no defined criteria or structure to what constitutes ESG,” Todd Sohn, ETF strategist at Strategas Securities, told Bloomberg. He also cites high fees for average investment performance as being an issue of the sector. 

The prospectus for Veridien’s new ETF starts out doing little to disabuse investors of the notion that ESG funds can be opaque by stating on its first page that “Traditional ETFs tell the public what assets they hold each day. This ETF will not.”  

Its hefty expense ratio of more than 80 basis points also seems to confirm criticisms of ESG funds. Its investment objective also seems vague: It will invest in “companies technologies and business models that contribute to climate change mitigation.”  

Veridien’s ETF shows an ESG sector that is, albeit imperfectly, beginning to address some of the main criticisms of that investing strategy. 

Contact Gabe Alpert at [email protected]