Worried about climate change? Now there’s an easy investment for that.
The first fossil fuel free ETF launched Thursday.
“We are fully divested from fossil fuels. For us, that’s really just the starting point,” says Ian Monroe, president and chief sustainability officer of Etho Capital, which runs the ETHO ETF.
Environmentally conscious investors currently have a few options for their money. But here’s what sets the ETHO ETF apart:
1. It’s made up of 400 U.S. stocks from many industries. A lot of other investments that fight climate change only invest in a handful of companies such as solar firms or tech companies. They have a narrow focus.
2. This ETF doesn’t own a single fossil fuel company in its portfolio, where as there are other funds that market themselves as “low carbon.”
The launch of the ETHO ETF comes just ahead of the big United Nations Climate Change Conference, which starts Nov. 30.
How the fund screening process works
The fund’s rigorous screening process excludes not only fossil fuel companies, but also tobacco, weapons or gambling companies.
But that’s not all. After what it culls out companies from the “bad actor” screen, the fund managers then pick only that are the best in their industry for their sustainability practices. For example, the fund includes Chipotle and Starbucks but not McDonald’s or KFC and Taco Bell parent Yum! Brands.
This isn’t just about doing good for the globe. Etho Capital argues it’s a smart investment because companies focused on making a better future should have higher returns.
“We wanted to get to an investment product that the majority of sustainability investors would feel good about investing in,” says Monroe.
The fee is 75 basis points
ETFs — or exchange traded funds — typically have lower fees than mutual funds and trade trade on an exchange, like securities. They often track stock and bond indexes, as well as other assets like currencies and commodities.
They are growing in popularity among investors. The fee for the ETHO ETF is 0.75%. It’s on the higher end for an ETF, but on the lower end for similar environmentally conscious investment options.
Morningstar confirms this would be the first diversified fossil fuel free fund. Numerous other ETFs are fossil fuel free because they only invest in solar energy or bank stocks.
Mutual funds like Huntington EcoLogical Strategy ETF and the iShares MSCI ACWI Low Carbon Target fund aim to do something similar, but they are marketed as “low carbon” not fully divested from fossil fuels.
“We think impact investing is becoming mainstream,” says Connor Platt, the chief investment officer of Etho Capital.
An increasing number of organizations like the Rockefeller Brothers Fund have pledged to divest from coal or all fossil fuels in the coming years.
Etho Capital was started by Monroe, a Stanford professor with a background in the sustainability and climate movements, and Platt, who has had a long career in the investment world at Morgan Stanley and Brown Brothers Harriman.
“We’re surprised no one has done this before,” says Monroe.