ESG investing has come under pressure in recent months amid accusations of greenwashing and revelations that many popular ESG funds hold dirty assets. At the same time, some Republican lawmakers are seeking to ban public pensions from investing in ESG funds, arguing that the funds inherently make a value (political) judgment.
Carbon Collective, a climate change-focused online-only advisor, recently launched the actively managed Carbon Collective Climate Solutions U.S. Equity ETF (CCSO) to address these concerns by taking a unique approach.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
A Unique Approach to Climate
Most climate-focused ESG funds take an exclusionary approach that removes fossil fuel companies or energy-intensive businesses from a benchmark index. That way, investors can passively invest in a broad market index without having their money in undesirable companies. But, on the other hand, they’re not investing in solutions either.
CCSO invests in U.S.-listed climate solutions. In particular, the fund’s holdings include only companies generating at least 50% of their revenue from building climate solutions. They must also pass a defense industry filter and a fraudulent claims filter, removing ‘greenwashing’ offenders.
Being an active ETF, CCSO’s fund managers have the liberty to deploy their own methodology to identify climate technologies and categories using open-source resources from independent third parties, like Project Drawdown or the International Energy Agency. Then, they conduct extensive searches to identify companies building solutions in these categories using their public filings and other resources.
What’s in the Portfolio?
CCSO holds about 350 companies spanning green utilities, waste management, biofuels, carbon capture, water utilities, and plant-based diet companies. The fund is weighted by market capitalization, with no holding accounting for more than 5% of the portfolio.
The most significant allocations include:
- Tesla Inc. (TSLA) – 5.00%
- NextEra Energy Inc. (NEE) – 5.00%
- Applied Materials Inc. (AMAT) – 5.00%
- Zoom Video Communication Inc. (ZM) – 4.94%
- ABB Ltd. (ABB) – 4.34%
The company provides a detailed breakdown of its portfolio along with various categorizations and descriptions on its website. For example, they enable investors to filter holdings by company type or index status.
With a 0.35% expense ratio, the fund offers a cost-effective alternative to other solutions-focused ETFs, such as JP Morgan’s Climate Change Solutions ETF (TEMP). The all-cap nature of the portfolio also means that investors may have more exposure to small-cap companies than competing ETFs in the space.
Alternatives to Consider
Most ESG funds take an exclusionary approach, but there are a handful of inclusionary funds in the space.
| Name | ETF Ticker | ETF Type | Expense Ratio | Description |
| JPMorgan Climate Change Solutions ETF | TEMP | Active | 0.49% | Invests in companies developing climate-change solutions around the world. |
| iShares USD Green Bond ETF | BGRN | Passive | 0.20% | Invests in green bonds that finance climate-friendly initiatives. |
| VanEck Green Bond ETF | GRNB | Passive | 0.20% | Invests in green bonds that finance climate-friendly initiatives. |
The Bottom Line
The Carbon Collective Climate Solutions U.S. Equity ETF (CCSO) is one of the few climate-focused ETFs that invests in solutions rather than solely avoiding problem companies. While it doesn’t offer the same level of diversification as an index fund, investors interested in climate action may want to consider the ETF for their portfolios.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
