The Top 10 Ways of Investing in the Climate Transition
The shift to renewable energy and electric cars is driving global spending on green infrastructure, carbon credits, EV batteries, wind, solar, nuclear projects, and more. See which ETFs can help you invest in the climate transition.
SustainFi Updated November 28th, 2021
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The need to move to cleaner power benefits investments like carbon credits, renewables like wind, solar, hydrogen, and nuclear power, green metals, as well as electric vehicles and EV batteries. Learn how you can best access each of these opportunities.
What funds invest in the climate transition?
- KraneShares Global Carbon ETF (KRBN)
- iShares Global Clean Energy ETF (ICLN)
- Invesco Solar ETF (TAN)
- First Trust Global Wind Energy ETF (FAN)
- Global X Lithium & Battery Tech ETF (LIT)
- KraneShares Electric Vehicles & Future Mobility ETF (KARS)
- iShares Global Green Bond ETF (BGRN)
- Defiance Next Gen H2 ETF (HDRO)
- Global X Uranium ETF (URA)
- VanEck Green Metals ETF (GMET)
The top 10 climate transition funds
|Fund / Ticker||Investments||Expense Ratio||Assets ($m)||2021 Performance|
|KraneShares Global Carbon ETF (KRBN)||Carbon credit futures||0.79%||1,360||89%|
|iShares Global Clean Energy ETF (ICLN)||Diversified clean energy||0.42%||6,580||-15%|
|Invesco Solar ETF (TAN)||Solar power||0.69%||3,810||-9%|
|First Trust Global Wind Energy ETF (FAN)||Wind power||0.62%||365||-13%|
|Global X Lithium & Battery Tech ETF (LIT)||Lithium and batteries||0.75%||6,140||55%|
|KraneShares Electric Vehicles ETF (KARS)||Electric cars||0.70%||362||35%|
|iShares Global Green Bond ETF (BGRN)||Green bonds||0.20%||255||-2%|
|Defiance Next Gen H2 ETF (HDRO)||Hydrogen||0.30%||74||13%|
|Global X Uranium ETF (URA)||Uranium||0.69%||1,420||67%|
|VanEck Green Metals ETF (GMET)||Green metals||0.59%||3.5||-|
Data as of 11/25/2021
Learn more about each option:
1. KraneShares Global Carbon ETF (KRBN)
- Expense ratio: 0.79%
- 2021 performance: 89%
There are now several regional markets for carbon credits, which are permissions to pollute given by governments to polluting companies like utilities. Carbon credits let polluting businesses emit a certain amount of greenhouse gases each year. Polluters that are better at reducing emissions can make money by selling the remaining permits to others. Over time, governments reduce allowances forcing companies to be more efficient by investing in green technologies.
Launched in 2020, KraneShares Global Carbon Strategy ETF (KRBN) lets you invest in carbon credits from the European Union (the largest market), California, and the Eastern U.S (RGGI). Roughly 65% of the ETF is invested in European Union Allowances, followed by California Carbon Allowances (around 25%) and RGGI allowances. With carbon credit prices rising across the board, KRBN has had a stellar 2021 so far.
KraneShares is a specialist in Chinese ETFs, and China, which launched a carbon credit market in mid-2021, may be added to the ETF in the future.
🔔 Read our review of KRBN and carbon credit investing.
2. iShares Global Clean Energy ETF (ICLN)
- Expense ratio: 0.42%
- 2021 performance: -15%
If you want to invest in renewables but are not sure which particular sector to target, the iShares Global Clean Energy ETF (ICLN) lets you invest in diversified renewables, including solar, wind, hydro, and geothermal.
Established in 2008, ICLN is by far the largest clean energy ETF, with over $6.5 billion in assets. It tracks an index of roughly 80 clean energy companies in the biofuels, ethanol, geothermal, hydroelectric, solar, and wind industries. This is a global fund, investing in the U.S. (39% of assets), Denmark (16%), and Spain (6%). ICLN’s top investments are the solar company Enphase Energy, the Danish wind turbine manufacturer Vestas Wind Systems, and the fuel cell maker Plug Power. ICLN has one of the lowest expense ratios among clean energy ETFs (0.42%).
However, after a killer 2020 on the back of Biden’s election win, the clean energy space has not done so well in 2021.
3. Invesco Solar ETF (TAN)
- Expense ratio: 0.69%
- 2021 performance: -9%
Although solar provides only 3% of U.S. electricity (4% globally), it is the fastest-growing source of renewable energy, helped by government mandates, tax credits, and net-zero pledges. Solar is already one of the cheapest sources of power globally, even without subsidies. The main problem with solar is that the sun shines only during the day, but this challenge could be overcome as battery storage gets better.
Invesco Solar ETF (TAN) is the largest ETF that invests in solar energy companies. Launched in 2008, this fund has gathered over $3.8 billion in assets.
There aren’t many publicly traded solar businesses, so TAN owns about 45 companies, mainly in the U.S. and China. The top ten stocks are 60% of the fund’s assets and include companies like solar panel inverter manufacturers Enphase Energy and SolarEdge, and First Solar Inc, a solar panel maker.
However, TAN has been very volatile: the fund was up 234% in 2020 but declined 9% in 2021 through November. Solar stock prices have been sensitive to subsidies, tariffs, energy prices, and politics generally.
4. First Trust Global Wind Energy ETF (FAN)
- Expense ratio: 0.62%
- 2021 performance: -13%
Wind power is abundant, cheap and carbon-free. Thanks to turbine costs coming down, wind now provides about 7% of global electricity, and it is growing fast. Like solar, wind power is intermittent – the wind doesn’t blow all the time. But this issue could be solved with better technologies, including green hydrogen.
The First Trust Global Wind Energy ETF (FAN) is the largest ETF that invests in the wind power industry. Around 60% of the fund is in “pure-play” wind companies, which are mostly located outside the U.S.; FAN’s top countries are Denmark, Canada, and Spain. FAN has 50 holdings, though the top ten are nearly half of its assets. The top three stocks are the Chinese wind power producer China Longyuan Power Group, the Danish wind turbine maker Vestas, and the Canadian utility Northland Power.
Like other clean energy ETFs, FAN has been very volatile. It returned over 60% in 2020, but it’s down 13% in 2021 (through November). It was also down 22% in 2011 and 11% in 2018.
5. Global X Lithium & Battery Tech ETF (LIT)
- Expense ratio: 0.35%
- 2021 performance: 55%
The shift to electric cars, which run on lithium-ion batteries, is driving demand for lithium, a key battery metal. Lithium prices have rebounded in 2021, and ETFs that invest in lithium (and batteries generally) have kept pace.
Launched in 2010, the Global X Lithium & Battery Tech ETF (LIT) is the largest lithium and battery ETF. It invests in roughly 40 companies involved in lithium mining or lithium battery production. Nearly half of the fund’s assets are in Chinese stocks (most lithium is refined in China).
LIT’s concentrated holdings include lithium miners Albemarle and Ganfeng Lithium, lithium-ion battery manufacturers CATL, BYD, Samsung SDI, and Panasonic, and even car-makers like Tesla, the second-largest holding. Albemarle, the world’s top lithium miner, is the number one stock. LIT is market-cap weighted, meaning that the ETF assigns a higher percentage of assets to the largest companies.
The fund costs 0.75%. The ETF has been volatile in the past, though it had a great run over the past year, returning 87.5%.
6. KraneShares Electric Vehicles & Future Mobility ETF (KARS)
- Expense ratio: 0.70%
- 2021 performance: 35%
The KraneShares Electric Vehicles & Future Mobility ETF (KARS) owns stocks of companies involved in making electric cars (including Tesla, General Motors, Ford, Nio, Xpeng, and Daimler), battery technology (like CATL), autonomous driving technology, lithium and copper mining, and hydrogen fuel cells.
Unlike most EV funds that rely on big tech and semiconductor stocks, KARS holds a lot of car manufacturers. The top ten stocks include Tesla, the largest holding at nearly 7% of the fund. Holdings are fairly diversified by region, too. China is about 42% of the fund, which is important because it’s the largest market for electric cars. KraneShares, which launched this fund, is known for China ETFs (as well as carbon credit ETFs.)
KARS has over $350 million in assets and costs 0.70%.
7. iShares Global Green Bond ETF (BGRN)
- Expense ratio: 0.20%
- 2021 performance: -2%
Green bonds finance sustainable projects like wind and solar power and energy efficiency upgrades. They’ve been issued by various parties, from the government of France to Apple and Starbucks. Although individual investors can’t buy bonds directly, you can invest in green bonds through an ETF.
Launched in 2018 by BlackRock, the iShares Global Green Bond ETF (BGRN) owns a basket of high-quality green bonds, which align with rating agency MSCI’s Green Bond Principles. Qualifying bonds must fund projects in alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, or climate adaption. Bond issuers must also maintain processes for selecting green projects, managing proceeds, and reporting environmental impact.
The fund owns around 700 bonds, including those issued by several European governments like France and Germany. Although interest rates are low and bonds have not performed well, a green bond fund could help you diversify your investments.
8. Defiance Next Gen H2 ETF (HDRO)
- Expense ratio: 0.30%
- 2021 performance: 13%
Hydrogen offers an alternative for sectors that are hard to decarbonize otherwise, notably transportation. Green hydrogen, a colorless gas, is produced using renewables, burns clean, and can be used to fuel long-distance trucks, planes, and ships. (Lithium-ion batteries, used in Teslas, are generally too heavy for long distances.) Green hydrogen can also store energy and power industrial processes, like steel or cement making.
Several 2021 ETF launches let you invest in green hydrogen. Launched in March 2021, the Defiance Next Gen H2 ETF (HDRO) invests in companies that get at least 50% of revenue from hydrogen or fuel cell technology (which converts hydrogen into electricity).
HDRO owns around 25 stocks; each capped at 10% (4% for industrial gas stocks.) The top three investments are fuel cell manufacturers Plug Power, FuelCell Energy, and Bloom Energy. The top ten investments are nearly 70% of this fund. This new ETF has already attracted over $70 million in assets, and it costs only 0.30%.
9. Global X Uranium ETF (URA)
- Expense ratio: 0.69%
- 2021 performance: 67%
Although nuclear power has developed a bad rap stemming from concerns about toxic waste and a few high-profile accidents, this energy source is getting a second look. Proponents like Bill Gates argue that nuclear power, which works 24/7, can be used alongside intermittent renewables like wind or solar. New power plants are being built in places like China, and several high-profile startups are working on innovative power plant designs.
There is no great way of investing in nuclear power plants, which are generally operated by diversified utilities. But you can invest in uranium, a silvery-grey metal that fuels nuclear power plants.
Launched in 2010, the Global X Uranium ETF (URA), the largest uranium ETF, is up 67% in 2021 and 119% over the past year. URA invests in around 40 companies involved in uranium mining and the production of nuclear components.
The fund’s top investments are uranium miners in Canada, Australia, and Kazakhstan. The top three holdings are Canadian uranium miners Cameco and NexGen Energy and the Kazakh miner KazAtomProm. Cameco alone is over 23% of the fund. Around 50% of the fund’s assets are invested in Canada, followed by Australia and Kazakhstan.
10. VanEck Green Metals ETF (GMET)
- Expense ratio: 0.59%
The electrification of cars and demand for battery storage require a lot of battery metals, also referred to as “green metals.” These include lithium, cobalt, nickel, rare earths, and copper. Despite recent investments in green metal mining, industry analysts say that supply may still not keep up with demand for critical resources like cobalt and lithium in the near term.
Launched in November 2021, the VanEck Green Metals ETF invests in companies that produce, refine, process and recycle green metals. Although GMET has just launched and has less than $4 million in assets, it is the only ETF that focuses on metals required for the shift to clean energy.
The fund’s 44 holdings include top cobalt producers Glencore and Zhejiang Huayou Cobalt Co Ltd, lithium miners like Ganfeng Lithium, and diversified mining companies like Freeport-Mcmoran Inc. Chinese stocks are about a third of the fund’s assets, followed by Australian (16%) and U.S. holdings (11%).
The ETF costs 0.59%, which is reasonable.
How to invest in climate ETFs
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🔔 Looking for other ways to invest in climate change solutions? See the list of the top 8 electric car ETFs.
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