3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

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A new landmark report by the Intergovernmental Panel on Climate Change (IPCC) was released earlier this week. It provided a stark warning about the impacts of human industrialisation on the global climate.

The IPCC report found human activity could likely lead to a 1.5-degree Celsius increase in global average temperatures above pre-industrial levels within just the next two decades.

The report also warned that opportunities to reverse the warming trend were rapidly diminishing, and governments needed to do more to reach net-zero carbon emissions sooner.

This all makes for some pretty sobering reading. But it may also prompt you to reflect a little more deeply about the types of companies you are invested in. Perhaps it’s time to really think about how much the companies that make up your portfolio are contributing to a greener, more sustainable future.

And it’s not only so that you can sleep better at night – it might even boost your returns, too. As governments create further economic incentives for companies to become more environmentally friendly, forward-thinking “greener” companies may actually be the ones most likely to succeed and become profitable.

So, let’s say you do want to shift some of your investments into more climate-friendly companies. It can be pretty difficult to know where to start. Luckily, there are plenty of exchange-traded funds (ETFs) currently trading on the ASX that offer easy access to a diversified basket of ethically conscious companies.

ETFs trade on the ASX just like ordinary shares, but they actually pool together money from a group of small investors and use that cash to purchase shares in a range of companies, based on a specified investment mandate.

While there are quite a few options available on the ASX, here are three ETF ideas to consider.    

Betashares Global Sustainability Leaders ETF (ASX:ETHI)

With more than $1.76 billion in net assets, the Betashares Global Sustainability Leaders ETF is easily the largest fund on this list. The fund only invests in international (non-Australian) companies that pass its strict ethical screening process, and it prefers companies that are proven “climate leaders”.

The fund invests globally, although close to 70% of its holdings are in the US, according to its June 2021 fact sheet, with smaller allocations going to Japan and the Netherlands.

ETFS Battery Tech & Lithium ETF (ASX:ACDC)

This battery and lithium fund – which trades on the ASX with the appropriate ticker ACDC – is the smallest fund on this list with just over $300 million in net assets to its name. This might interest shareholders wishing to gain exposure to the developing trend in electronic vehicles.

The fund aims to replicate the performance of the Solactive Battery Value-Chain Index, which includes companies involved in the mining and refinement of lithium and associated products used in energy storage. The fund’s largest holding is currently Australian lithium miner Pilbara Minerals Ltd (ASX:PLS).

Vanguard Ethically Conscious International Shares Index ETF (ASX:VESG)

The last fund on the list is this ethically conscious option from Vanguard. It offers investors access to some of the world’s largest companies – think Apple Inc (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN) – but screens out any companies involved in fossil fuels, nuclear power, gambling, and a range of other unsavoury enterprises.

The fund tracks the FTSE Developed ex Australia Choice Index (formerly the FTSE Developed ex Australia ex Non-Renewable Energy, Vice Products and Weapons Index). It has delivered the best year-to-date returns of the funds included on this list – up more than 20% so far in 2021.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Rhys Brock owns shares of Pilbara Minerals Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Amazon, Apple, and Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Amazon and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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