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Visualizing the Sustainable ETF Universe

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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.

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Energy

Visualizing China’s Energy Transition in 5 Charts

This infographic takes a look at what China’s energy transition plans are to make its energy mix carbon neutral by 2060.

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China Energy Mix

Visualizing China’s Energy Transition in 5 Charts

In September 2020, China’s President Xi Jinping announced the steps his nation would take to reach carbon neutrality by 2060 via videolink before the United Nations Assembly in New York.

This infographic takes a look at what this ambitious plan for China’s energy would look like and what efforts are underway towards this goal.

China’s Ambitious Plan

A carbon-neutral China requires changing the entire economy over the next 40 years, a change the IEA compares to the ambition of the reforms that industrialized the country’s economy in the first place.

China is the world’s largest consumer of electricity, well ahead of the second place consumer, the United States. Currently, 80% of China’s energy comes from fossil fuels, but this plan envisions only 14% coming from coal, oil, and natural gas in 2060.

Energy Source20252060% Change
Coal52%3%-94%
Oil18%8%-56%
Natural Gas10%3%-70%
Wind4%24%+500%
Nuclear3%19%+533%
Biomass2%5%+150%
Solar3%23%+667%
Hydro8%15%+88%

Source: Tsinghua University Institute of Energy, Environment and Economy; U.S. EIA

According to the Carbon Brief, China’s 14th five-year plan appears to enshrine Xi’s goal. This plan outlines a general and non specific list of projects for a new energy system. It includes the construction of eight large-scale clean energy centers, coastal nuclear power, electricity transmission routes, power system flexibility, oil-and-gas transportation, and storage capacity.

Progress Towards Renewables?

While the goal seems far off in the future, China is on a trajectory towards reducing the carbon emissions of its electricity grid with declining coal usage, increased nuclear, and increased solar power capacity.

According to ChinaPower, coal fueled the rise of China with the country using 144 million tonnes of oil equivalent “Mtoe” in 1965, peaking at 1,969 Mtoe in 2013. However, its share as part of the country’s total energy mix has been declining since the 1990s from ~77% to just under ~60%.

Another trend in China’s energy transition will be the greater consumption of energy as electricity. As China urbanized, its cities expanded creating greater demand for electricity in homes, businesses, and everyday life. This trend is set to continue and approach 40% of total energy consumed by 2030 up from ~5% in 1990.

Under the new plan, by 2060, China is set to have 42% of its energy coming from solar and nuclear while in 2025 it is only expected to be 6%. China has been adding nuclear and solar capacity and expects to add the equivalent of 20 new reactors by 2025 and enough solar power for 33 million homes (110GW).

Changing the energy mix away from fossil fuels, while ushering in a new economic model is no small task.

Up to the Task?

China is the world’s factory and has relatively young industrial infrastructure with fleets of coal plants, steel mills, and cement factories with plenty of life left.

However, China also is the biggest investor in low-carbon energy sources, has access to massive technological talent, and holds a strong central government to guide the transition.

The direction China takes will have the greatest impact on the health of the planet and provide guidance for other countries looking to change their energy mixes, for better or for worse.

The world is watching…even if it’s by videolink.

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Energy

Visualizing 50+ Years of the G20’s Energy Mix

Watch how the energy mix of G20 countries has evolved over the last 50+ years.

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G20 Energy Mix share

Visualizing 50+ Years of the G20’s Energy Mix (1965–2019)

Over the last 50 years, the energy mix of G20 countries has changed drastically in some ways.

With many countries and regions pledging to move away from fossil fuels and towards cleaner sources of energy, the overall energy mix is becoming more diversified. But shutting down plants and replacing them with new sources takes time, and most countries are still incredibly reliant on fossil fuels.

This video from James Eagle uses data from BP’s Statistical Review of World Energy to examine how the energy mix of G20 members has changed from 1965 to 2019.

G20’s Energy History: Fossil Fuel Dependence (1965–1999)

At first, there was oil and coal.

From the 1960s to the 1980s, energy consumption in the G20 countries relied almost entirely on these two fossil fuels. They were the cheapest and most efficient sources of energy for most, though some countries also used a lot of natural gas, like the United States, Mexico, and Russia.

Country (Energy Mix - 1965)OilCoalOther
🇦🇷 Argentina83%3%14%
🇦🇺 Australia45%50%5%
🇧🇷 Brazil66%8%26%
🇨🇦 Canada47%13%40%
🇨🇳 China8%87%5%
🇪🇺 EU47%45%8%
🇫🇷 France49%37%14%
🇩🇪 Germany34%63%3%
🇮🇳 India24%67%9%
🇮🇩 Indonesia86%2%12%
🇮🇹 Italy66%11%23%
🇯🇵 Japan56%31%13%
🇲🇽 Mexico61%3%36%
🇷🇺 Russia29%50%21%
🇸🇦 Saudi Arabia98%0%2%
🇿🇦 South Africa19%81%0%
🇰🇷 South Korea20%77%3%
🇹🇷 Turkey46%47%7%
🇬🇧 UK38%59%3%
🇺🇸 U.S.45%22%33%

But the use of oil for energy started to decrease, beginning most notably in the 1980s. Rocketing oil prices forced many utilities to turn to coal and natural gas (which were becoming cheaper), while others in countries like France, Japan, and the U.S. embraced the rise of nuclear power.

This is most notable in countries with high historic oil consumption, like Argentina and Indonesia. In 1965, these three countries relied on oil for more than 83% of energy, but by 1999, oil made up just 55% of Indonesia’s energy mix and 36% of Argentina’s.

Even Saudi Arabia, the world’s largest oil exporter, began to utilize oil less. By 1999, oil was used for 65% of energy in the country, down from a 1965 high of 97%.

G20’s Energy Mix: Gas and Renewables Climb (2000–2019)

The conversation around energy changed in the 21st century. Before, countries were focused primarily on efficiency and cost, but very quickly, they had to start contending with emissions.

Climate change was already on everyone’s radar. The UN Framework Convention on Climate Change was signed in 1992, and the resulting Kyoto Protocol aimed at reducing greenhouse gas emissions was signed in 1997.

But when the Kyoto Protocol went into effect in 2005, countries had very different options available to them. Some started to lean more heavily on hydroelectricity, though countries that already utilized them like Canada and Brazil had to look elsewhere. Others turned to nuclear power, but the 2011 Fukushima nuclear disaster in Japan turned many away.

This is the period of time that renewables started to pick up steam, primarily in the form of wind power at first. By 2019, the G20 members that relied on renewables the most were Brazil (16%), Germany (16%), and the UK (14%).

Country (Energy Mix - 2019)Natural GasNuclearHydroelectricRenewablesOther
🇦🇷 Argentina49%2%10%4%35%
🇦🇺 Australia30%0%2%7%61%
🇧🇷 Brazil10%1%29%16%44%
🇨🇦 Canada31%6%24%4%35%
🇨🇳 China8%2%8%5%77%
🇪🇺 EU22%11%4%10%53%
🇫🇷 France16%37%5%6%36%
🇩🇪 Germany24%5%1%16%54%
🇮🇳 India6%1%4%4%85%
🇮🇩 Indonesia18%0%2%4%76%
🇮🇹 Italy40%0%6%10%44%
🇯🇵 Japan21%3%4%6%66%
🇲🇽 Mexico42%1%3%5%49%
🇷🇺 Russia54%6%6%0%34%
🇸🇦 Saudi Arabia37%0%0%0%63%
🇿🇦 South Africa3%2%0%2%93%
🇰🇷 South Korea16%11%0%2%71%
🇹🇷 Turkey24%0%12%6%58%
🇬🇧 UK36%6%1%14%43%
🇺🇸 U.S.32%8%3%6%51%

However, the need to reduce emissions quickly made many countries make a simpler switch: cut back on oil and coal and utilize more natural gas. Bituminous coal, one of the most commonly used in steam-electric power stations, emits 76% more CO₂ than natural gas. Diesel fuel and heating oil used in oil power plants emit 38% more CO₂ than natural gas.

As countries begin to push more strongly towards a carbon-neutral future, the energy mix of the 2020s and onward will continue to change.

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