(Bloomberg) -- An online investment adviser that creates climate-focused 401ks is the latest entrant to throw its hat into the ring of ESG exchange-traded funds.
The Carbon Collective Climate Solutions U.S. Equity ETF is set to begin trading under the ticker “CCSO” Tuesday. The actively-managed fund will track about 200 US companies across the market capitalization spectrum that are actively looking to solve the climate change crisis through avenues like green utilities, plant-based diets, and carbon capture, according to a regulatory filing. At least half of each companies’ revenue must come from climate solutions.
Like many climate-focused exchange traded funds on the market, Carbon Collective’s ETF will screen out high-carbon emission companies like those in the oil and gas industries. For this fund, Tesla Inc. is in, while Exxon Mobil Corp. is out.
The fund is launching as investor interest in ESG strategies fizzles and several high-profile greenwashing scandals put a kink in the industry’s virtuous image. While waning sentiment has weighed on funds employing do-good strategies, some so-called “anti-ESG” funds have been taking off. The oil-focused Strive US Energy ETF (DRLL) has grown to about $327 million in assets since its early August launch.
“The ESG category is getting very crowded, and supply is outpacing demand by a wide margin. Issuers are betting on a massive market forming in the future but its not a guarantee,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.
“There hasn’t been a simple, cost-effective way for people to invest in the companies building climate solutions,” said Zach Stein, co-founder and CIO of Carbon Collective. “It’s not enough to just avoid investing in oil companies and companies that derive much of their revenue from fossil fuels. We need investment in the companies that are focused on solving climate change.”
The fund will have an expense ratio of 0.35%, compared to 0.46%, the average expense ratio of US equity ESG ETFs tracked by Bloomberg Intelligence.
The San-Francisco-based investment adviser offers green-only portfolios for individuals through their online robo adviser and 401k plans for businesses’ employees. A spokesperson for the company said it will be offering CCSO in 401k accounts, but not immediately. Small employers like DroneSeed, a reforestation company, and Cerno, a lighting company use the Carbon Collective’s 401ks. The company also devised a Climate Index in December.
--With assistance from Isabelle Lee.