Infographic: Visualizing the Sustainable ETF Universe
Connect with us

Green

Visualizing the Sustainable ETF Universe

Published

on

Sustainable ETF Universe

Visualizing the Sustainable ETF Universe

Globally, sustainable exchange-traded fund (ETF) assets hit $150 billion last year, vaulting 25 times higher than in 2015.

Yet despite this growth, sustainable ETFs—baskets of investments that focus on environmental, social and governance issues—account for roughly 5% of the entire ETF universe. What makes up this rapidly growing market? Where are the most common areas for investment?

To answer this question, this infographic from MSCI breaks down the sustainable ETF universe.

Sustainable ETFs: An Overview

By and large, the scope of sustainable ETFs can vary. One sustainable ETF may consist of clean tech companies, and another could focus on sustainable leaders in the S&P 500. Like the broader ETF market, they typically offer low fees.

Overall, the sustainable ETF universe can be broken down into four types of assets.

ETF Asset ClassGlobal Number of ETFsShare of Total
Equity33180.7%
Bond6916.8%
Mixed Assets82.0%
Alternative20.5%

As of Dec. 31, 2020
Source: MSCI LLC ESG Research (Feb, 2021)

Unsurprisingly, the majority of sustainable ETFs are equity ETFs, comprising 81% of the market as of Dec. 31, 2020.

Following equity ETFs are bond ETFs, at nearly 17% of the total universe. One growing subset, known as green bonds, are typically used to fund environmental projects such as water management and green buildings. Here, debt issuers generate fixed income for investors that target climate objectives.

Meanwhile, there are just eight funds globally, or about 2% of sustainable ETFs, that combine more than one type of asset. Alternative ETFs, which are assets outside of stocks and bonds, are the smallest part of the universe at 0.5%.

Sustainable ETFs by Approach

Next, let’s take a look at different sustainable investing styles. Generally speaking, there are four main approaches: integration, values & screening, thematic, and impact.

ESG ETF by TypeShare of TotalEuropeNorth AmericaAsiaAustralia
Integration40.5%30.8%50.1%57.7%28.6%
Values & screening43.9%60.6%22.5%34.6%71.4%
Thematic12.9%8.7%20.7%3.8%0.0%
Impact2.6%0.0%5.9%3.8%0.0%

As of Dec. 31, 2020
Source: MSCI LLC ESG Research (Feb, 2021)

Integration approaches, which make up 41% of the universe, are when investors use ESG factors to identify risks and opportunities that may enhance long-term performance. A best-in-class method, which invests in leaders in a given sector, is one form of an ESG integration approach.

In the U.S., the 24 largest equity ETFs following this approach hold roughly $25 billion in assets.

At the lower end of the spectrum, 3% of all sustainable ETFs follow impact approaches, which cover investments that provide solutions to environmental and social issues. Investments that fall under this approach may have frameworks that target the UN Sustainable Development Goals.

Sustainable ETFs by Domicile

Where are the biggest markets for launching sustainable ETFs?

When it comes to the prevalence of sustainable ETFs around the world, Europe leads the way. With over half of all sustainable ETFs, Europe surpasses North America by a significant margin. Of the 40 ETFs with over $1 billion in assets, 26 are domiciled in Europe.

ETF by DomicileNumber of ETFsShare of Total
Europe20850.7%
North America16139.3%
Asia256.1%
Australia143.4%
Other20.5%

As of Dec. 31, 2020
Source: MSCI LLC ESG Research (Feb, 2021)

Despite covering about 6% of the total number of ESG ETFs, interest in sustainability investing is strong in Asia. Notably, one study found that 79% of institutional investors in Asia-Pacific “significantly” or “moderately” increased investment in ESG-linked assets.

Understanding the Carbon Intensity of Sustainable ETFs

Finally, let’s examine how the carbon intensity of sustainable ETFs breaks down. Carbon intensity measures the amount of carbon dioxide equivalent emitted relative to a company’s revenue.

ETF Carbon IntensityShare of TotalAverage Carbon Intensity, Tons of CO2 Equivalent/USD Million Sales
Very Low5.7%0 to <15
Low18.4%15 to <70
Moderate50.1%70 to <250
High18.4%250 to <525
Very High7.4%525 to <2000

As of Dec. 31, 2020
Source: MSCI LLC ESG Research (Feb, 2021)

The carbon intensity of the average company varies significantly across sectors.

Interestingly, under 6% of sustainable ETFs exhibited the lowest carbon intensity levels of 0 to 15 weighted average tons of CO2 equivalent (WACI). Among the lowest carbon-intensive ETFs was one with a greater focus on banking, insurance and financials.

By contrast, sustainable ETFs with the highest carbon intensity levels accounted for over 7% of the total universe, with these funds holding higher shares of mining and utilities companies.

Across all sustainable ETFs, 58% fell within the moderate range of 70 to 250 WACI.

At the Crossroads

Sustainable investing may be one of the most critical movements over the last decade for the financial industry.

But at the same time, greenwashing concerns are rising. To offset this trend, the European Union has set in place new rules on what constitutes a sustainable fund. Here, investments will essentially be labeled as sustainable or not. This could become a global standard.

For investors who wish to invest in sustainable ETFs, the importance of research and data providers will play a more concrete role, especially as the universe continues to expand.

Click for Comments

Environment

Animation: Visualizing 140 Years of Global Surface Temperatures

Here’s a look at 140 years of global surface temperatures, highlighting the ten coldest and warmest years since 1880.

Published

on

Average surface temperature since 1800

Average surface temperatures since 1800

Animated: 140 Years of Global Surface Temperatures

For hundreds of years, Earth’s average surface temperature has been steadily increasing. And over the last decade, this global heating appears to have intensified.

Since 1880, the global average temperature has risen by an average of 0.08°C (0.14°F) every 10 years, according to the National Oceanic and Atmospheric Administration (NOAA).

But since 1981, warming has been occurring at more than twice that rate, by about 0.18°C (0.32°F) per decade.

This graphic by Pablo Alvarez shows 140 years of global surface temperatures, highlighting the 10 coldest and warmest years from 1880-2021 using data from NOAA.

Global Surface Temperatures Over Time

Over the last century and a half, there have been fluctuations in global surface temperatures, with some of the coolest years on record occurring in the late 19th century and early 20th century.

Average surface temperature since 1800

However, the last two decades have seen unprecedented warming, with the 10 warmest years on record all occurring within the last 20 years. Here’s a look at the 10 hottest years since 1800, and how they compared to the 20th century average:

The 10 Warmest Years

RankYearDeviation from 20th Century Avg. (°C)
#12016+0.99
#22020+0.97
#32019+0.94
#42015+0.93
#52017+0.9
#62018+0.82
#72014+0.74
#82010+0.72
#92013+0.67
#102005+0.66

As of this article’s publication, the warmest year on record was 2016, when temperatures were +0.99°C (1.78°F) above the 20th century average. After 2016, the second warmest year was 2020, when surface temperatures reached +0.97°C (1.75°F) higher than the previous century’s average.

What Factors Impact Earth’s Climate?

There are a number of natural factors that influence global surface temperatures, including phenomena such as:

  • Volcanic activity
  • Changes in the Earth’s orbit
  • Shifts in ocean currents

However, scientists believe that our current rate of warming has been undoubtedly caused by human influence, especially because of our carbon and other greenhouse gas (GHG) emissions.

According to the most recent report by the Intergovernmental Panel on Climate Change (IPCC), “observed increases in well-mixed greenhouse gas (GHG) concentrations since around 1750 are unequivocally caused by human activities.”

In other words, while Earth’s surface temperature naturally fluctuates over the years, our actions have undoubtedly contributed to recent changes in Earth’s climate.

What Are The Consequences?

We’re already seeing the impact of this warming, as the world struggles with extreme climate events like droughts, heatwaves, floods, and an influx of wildfires in places like Europe, the United States, and Australia.

These extreme weather patterns could become the new normal if left unchecked, which is why companies and policymakers around the world are embarking on different solutions—from targeting net zero goals to implementing technological innovations that could reduce emissions.

Continue Reading

Energy

The U.S. Utilities Decarbonization Index

This graphic quantifies and compares the state of decarbonization among the 30 largest investor-owned utilities in the United States.

Published

on

decarbonization index
The NPUC Annual Utility Decarbonization Report

Introducing the NPUC Annual Utility Decarbonization Report 2022
Created in partnership by Visual Capitalist and Motive Power.

Download the Free Report
decarbonization index

The U.S. Utilities Decarbonization Index

With the Biden administration targeting a zero-emissions power sector for the U.S. by 2035, how are the nation’s largest electric power providers faring in terms of decarbonization? 

Together, Visual Capitalist and our sponsor National Public Utilities Council have developed the Annual Utility Decarbonization Index. The index quantifies and compares the status of decarbonization among the 30 largest investor-owned utilities in the United States.

Decarbonization is quantified by scoring companies on six emissions-related metrics based on publicly available data from 2020 (the latest available).

Why the 30 Largest IOUs?

Why does the Decarbonization Index specifically look at the 30 largest IOUs by electricity generation? 

Well, these 30 utilities collectively generated around 2.3 billion megawatt hours (MWh) of electricity (including purchased power), making up over half of U.S. net electricity generation in 2020. Moreover, they also served over 90 million customers, accounting for roughly 56% of all electric customers in the country.

30 largest utilities in the U.S.

Therefore, it’s safe to say that the 30 largest IOUs have an important role in decarbonizing both the power sector and the U.S. economy. Since the residential, commercial, industrial, and agricultural sectors all use electricity, the decarbonization of utilities—the providers of electric power—can enable emissions reduction throughout the economy.

Decarbonization Index Methodology

For each of the six metrics used in the Decarbonization Index, utilities are scored on a scale of 1 (lowest) to 5 (highest), indicating whether they are trailing or leading, respectively. Scores for each metric are based on the range of figures for each metric divided into five equal buckets that the utilities fall into. 

For simplicity, let’s suppose that the lowest reported total emissions figure is zero metric tons of carbon dioxide (CO2) and the highest is 100 metric tons. In that case, companies that emit fewer than 20 metric tons of CO2 will receive the highest score of 5. Those that emit between 20 and 40 metric tons of CO2 will receive a 4, and so on.

A utility’s overall decarbonization score is an average of their scores across the six metrics, summarized below:

  1. Fuel Mix:
    The share of low-carbon sources (renewables, nuclear, and fuel cells) in the utility’s owned net electricity generation. We’ve assumed that the share of low-carbon sources can range from 0% to 100%, and scores are assigned based on that range.
  2. CO2 Emissions Intensity:
    The amount of CO2 emitted per megawatt-hour of owned and purchased electricity generation.
  3. Total CO2 Emissions:
    The sum of absolute CO2 emissions from owned and purchased electricity generation. While this overlooks the differing sizes of utilities, the rationale is that smaller unconsolidated utilities may find it easier to decarbonize than larger peers.
  4. CO2 Emissions per Capita:
    The amount of CO2 emitted from owned and purchased electricity generation per retail customer served in 2020.
  5. Decarbonization Goals:
    An evaluation of the utility’s interim greenhouse gas (GHG) emissions reduction goals and net-zero targets. The baseline for this is 50% GHG emissions reduction by 2030 and net-zero emissions by 2050 (utilities with baseline targets get a score of 2.5/5).
  6. Low-Carbon Investment:
    The share of planned capital expenditure (CAPEX) for electricity generation that is allocated to low-carbon sources. We’ve assumed that the share of CAPEX for low-carbon sources can range from 0% to 100%, and scores are assigned based on that range.

The data for these metrics comes from various sources including company sustainability reports, quantitative reporting templates from the Edison Electric Institute, and the Climate Disclosure Project’s Climate Change Questionnaire filings.

Explore all six metrics of the U.S. Utility Decarbonization Index

NPUC Annual Utility Decarbonization Report

Download The NPUC Annual Utility Decarbonization Report for free.

The Annual Utility Decarbonization Index 2022

Before looking at numbers, it’s important to note that the Decarbonization Index is relative and compares the 30 largest IOUs to each other. Therefore, a score of 5 does not indicate full decarbonization or net-zero emissions. Instead, it suggests that the utility is doing particularly well relative to its peers. 

With that in mind, here’s a look at the Annual Utility Decarbonization Index 2022: 

Rank
CompanyDecarbonization Score
#1Public Service Enterprise Group4.7
#2NextEra Energy Resources4.7
#3Pacific Gas and Electric4.5
#4Avangrid4.2
#5Exelon4.1
#6Portland General Electric3.7
#7Dominion Energy3.6
#8Florida Power and Light3.6
#9PNM Resources3.5
#10Alliant Energy3.4
#11Consolidated Edison3.4
#12Fortis Inc.3.4
#13American Electric Power3.3
#14Consumers Energy3.3
#15Evergy3.0
#16NRG Energy3.0
#17AES Corporation2.9
#18Xcel Energy2.9
#19WEC Energy2.9
#20DTE Energy2.8
#21Duke Energy2.8
#22Entergy2.8
#23TransAlta2.8
#24Emera2.7
#25Ameren2.6
#26Berkshire Hathaway Energy2.5
#27Oklahoma Gas & Electric Company2.4
#28Southern Company2.3
#29PPL Corporation2.2
#30Vistra Corp.2.0

A small number of companies did not report data on certain metrics and have been excluded from scoring for those metrics (denoted as N/A). In such cases, the decarbonization score is an average of five metrics instead of six.

Public Service Enterprise Group (PSEG), headquartered in New Jersey, tops this year’s rankings thanks to its low-emissions profile and ambitious climate goals. The company is aiming to achieve net-zero emissions from operations by 2030—five years ahead of the Biden Administration’s target and faster than any other utility on the list.

Tied with PSEG is NextEra Energy Resources, the clean energy-focused subsidiary of NextEra Energy. The company is the world’s largest producer of solar and wind power and generated 97% of its net electricity from low-carbon sources in 2020.

In third place is California’s largest utility, the Pacific Gas and Electric Company (PG&E). PG&E had the lowest emissions per capita of the 30 largest IOUs at 0.5 metric tons of CO2 per retail customer in 2020. That figure is significantly lower than the average of 11.5 metric tons across the 30 IOUs. 

Rounding out the top five are Avangrid, a renewables-focused U.S. subsidiary of the Spanish Iberdrola Group, and Exelon, the nation’s largest utility by number of retail customers. Avangrid had one of the cleanest fuel mixes with 87% of its owned net electricity coming from low-carbon sources. Exelon is the nation’s largest provider of emissions-free electricity, generating around 157 million MWh or 86% of its owned net electricity from nuclear power.

Download the Full Utility Decarbonization Report

While the Decarbonization Index provides a look at the current status of utility decarbonization, there’s much more to uncover in the full report, including:

  • The obstacles that utilities face on the path to decarbonization
  • The detailed data behind the six individual metrics
  • The U.S. utilities ESG report card
  • The solutions and strategies that can help accelerate decarbonization

>> Click here to download the full report and find out everything you need to know about utility decarbonization.

Subscribe to Visual Capitalist
Click for Comments

You may also like

Subscribe

Continue Reading

Subscribe

Popular