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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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Environment

Charted: The Safest and Deadliest Energy Sources

What are the safest energy sources? This graphic shows both GHG emissions and accidental deaths caused by different energy sources.

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Safest energy sources shareable updated

Charted: The Safest and Deadliest Energy Sources

Recent conversations about climate change, emissions, and health have put a spotlight on the world’s energy sources.

As of 2021, nearly 90% of global CO₂ emissions came from fossil fuels. But energy production doesn’t just lead to carbon emissions, it can also cause accidents and air pollution that has a significant toll on human life.

This graphic by Ruben Mathisen uses data from Our World in Data to help visualize exactly how safe or deadly these energy sources are.

Fossil Fuels are the Highest Emitters

All energy sources today produce greenhouse gases either directly or indirectly. However, the top three GHG-emitting energy sources are all fossil fuels.

EnergyGHG Emissions (CO₂e/gigawatt-hour)
Coal820 tonnes
Oil720 tonnes
Natural Gas490 tonnes
Biomass78-230 tonnes
Hydropower34 tonnes
Solar5 tonnes
Wind4 tonnes
Nuclear3 tonnes

Coal produces 820 tonnes of CO₂ equivalent (CO₂e) per gigawatt-hour. Not far behind is oil, which produces 720 tonnes CO₂e per gigawatt-hour. Meanwhile, natural gas produces 490 tonnes of CO₂e per gigawatt-hour.

These three sources contribute to over 60% of the world’s energy production.

Deadly Effects

Generating energy at a massive scale can have other side effects, like air pollution or accidents that take human lives.

Energy SourcesDeath rate (deaths/terawatt-hour)
Coal24.6
Oil18.4
Natural Gas2.8
Biomass4.6
Hydropower1.3
Wind0.04
Nuclear energy0.03
Solar0.02

According to Our World in Data, air pollution and accidents from mining and burning coal fuels account for around 25 deaths per terawatt-hour of electricity—roughly the amount consumed by about 150,000 EU citizens in one year. The same measurement sees oil responsible for 18 annual deaths, and natural gas causing three annual deaths.

Meanwhile, hydropower, which is the most widely used renewable energy source, causes one annual death per 150,000 people. The safest energy sources by far are wind, solar, and nuclear energy at fewer than 0.1 annual deaths per terawatt-hour.

Nuclear energy, because of the sheer volume of electricity generated and low amount of associated deaths, is one of the world’s safest energy sources, despite common perceptions.

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