How these ETFs are saving planet Earth
Welcome to the +31 subscribers who joined this past week and are now part of 6,551 millionaires, CEO’s and high-performing entrepreneurs who read the #1 financial newsletter on Substack.
If you’re enjoying The Profit Zone, please take a few seconds out of your day to share this newsletter, leave a like, or a comment. It means the world to me and costs you a total of $0. Thank you for the support! It doesn’t go unnoticed.
Announcement
At the end of this issue, I analyze 3 green ETFs you should consider buying for your own portfolio.
This is paid content.
If you want access, click below:
What Are Green ETFs?
In the last decade, there has been a massive push toward “going green”. In simple terms, to go green means:
“finding a balance between the life you lead, the impact that life and your choices have on the planet, and being mindful enough to help maintain ecological balance to preserve the planet, its ecosystems, and its natural resources” - The Eco Hub 2022 (Candice Batista).
Our planet is growing at a rate that is becoming unsustainable and if it keeps up, eventually we will need two planets to support our current consumption.
This is why investors are now considering investing in “green ETFs” or in other words, funds that allow investors to incorporate environmentally friendly strategies into their financial decisions.
Some of the strategies implemented by these funds include buying companies that promote green transportation, alternative energy sources, clean air and sustainable agriculture practices.
What are the qualifications to be considered “green”?
There is no specific definition explaining what makes a company “green”. It’s important to note that each ETF has different criteria for determining the eligibility of a company. Some are measured on their carbon footprint and some in relation to their work and exposure to fossil fuels.
At the end of the day, there’s no checklist for determining if an ETF is green or not. A company you believe to be making a strong effort to reduce its carbon footprint could be producing way too much Co2 for another investor. Whether the fund is green or not is based on opinion and it’s up to investors to decide if it matches their own criteria.
Expense Ratios
Green ETFs can naturally have higher expense ratios as the fund’s managers must actively be researching companies to determine if they satisfy the criteria of a green company. Also, because these green companies tend to be smaller and more volatile, the ETF will likely need to be rebalanced more often.
How they work
Green ETFs follow 3 broad groups when it comes to putting together a fund.
Exclusionary funds - avoids certain stocks like weapons, tobacco, and thermal coal. These funds won’t invest in anything that’s considered a “sin”
Integration funds - these funds take into account assessments by groups that give companies ratings based on their efforts to be green
Thematic funds - focus on capturing companies in a certain line of work, like renewable energy for example
There’s been a massive push toward green ETFs in the last year.
“Almost 2/3 of new ETFs had ESG ambitions” said David Hsu, an ETF specialist at Vanguard.
Check out the growth below.
Types of Green ETFs
Nuclear Energy ETFs
Those involved with using nuclear power plants to generate electricity on a global scale
Wind Power ETFs
Those involved with using wind turbines to generate electricity
Broad Clean Energy ETFs
Those involved with clean and renewable energy sources
Solar Power ETFs
Those involved with harnessing the sun’s energy and converting it into electricity
Hydroelectric ETFs
Those involved with using water through massive Dams to generate and supply electricity. Hydropower is considered the most cost-efficient means of generating electricity
Countries that are heavily investing in green energy
The image above shows the most environmentally friendly countries on an Environmental Performance Index (EPI) scale.
According to World Population Review:
The 2020 Environmental Performance Index ranks 180 countries across 32 performance indicators related to:
Environmental health and ecosystem vitality - from the amount of particulate pollution in the air and the purity of drinking water to the health of fish stocks and the management of wetlands
The EPI also grades each country's environmental trends and progress, which provides a foundation from which governments can implement effective environmental policies.
EPI measurements also enable countries to see how close they are to their established environmental policy goals.
Source:
https://worldpopulationreview.com/country-rankings/most-environmentally-friendly-countries
Some Food For Thought
Now that we’ve set the foundation for what green investing is, let’s take a look at some of the best green ETFs money can buy.