One Comment to “Carbon offset ETFs: the Diet Coke of investing”

  1. It was nice to read Josh Gregory’s article “Carbon offset ETFs: the Diet Coke of investing”. Most of what Josh had to say we at HANetf agree with and, in a way, it’s a nice validation. It’s also clear his critique is very similar to our thought process. Our main objective was how can one take ESG investing one step further. A low carbon investment still has a carbon footprint, and we believe if a mechanism exists today, even if not perfect, why not use it. Also, the analogy to Diet Coke is a good one. Diet Coke was first introduced on 9 August 1982 and it’s pretty clear it has improved in the last 40 years. So, by being first with HANzero™ (the brand we have given to ETF strategies that incorporate carbon offsetting) one could argue that we are still in the 1980s for carbon-neutral investing. However, we all hear, most recently in the IPCC report, 2050 is too late, so let’s act now!

    Historically, carbon offsets have often been shown to be unreliably true carbon reductions. In the past, carbon offset projects have over-promised, under-delivered, and even led to worse emissions impacts. Historically, for investors looking to make positive changes with their capital, there has always been something of a ‘catch’. Like most things, they improve over time and the same is true of carbon offsets.

    The rising market has attracted investor cash from a collection of emerging carbon-only investment funds that seek to profit as economies transition away from fossil fuels. Innovation is often the truest miracle of human endeavour. HANetf is always at the cutting edge of innovation in the ETF market. The management team has been instrumental in inventing various ETF firsts including the most notable physical gold ETFs. It is natural that these pioneers who have issued over 550 ETPs in their 20 years long ETF careers would innovate in this space as well. Investors are demanding action from their investment providers and HANetf is delivering to enhance the standard ESG approach through innovative features such as the HANzero™ carbon offset mechanism.

    Hector McNeil, Co-Founder, and Co-CEO of HANetf, said: “ESG strategies carry a carbon footprint. They try to tilt towards companies that exhibit relatively lower carbon emissions, but there’s still a carbon footprint, nonetheless. We developed HANzero™ to offer an immediate solution. I also think product providers often wait for clients to tell them what they need, but on climate, I think it’s incumbent on product providers to be highly proactive on solutions. The funds within our stable that offer the HANzero™ functionality include the HANetf S&P Global Clean Energy Select HANzero™ UCITS ETF (ZERO), launched in partnership with Purpose Investments, which was the first to market in Europe. Then in July, we launched the Saturna Sustainable ESG Equity HANzero™ UCITS ETF (SESG), an active global equity strategy managed by Saturna Capital. The above are the first two ETFs we have applied HANzero™ to but we plan many more. We are also talking with many of our existing and new clients on our platform. We also have many more ideas in the carbon credit space as well as the offset markets. What is exciting is that many asset managers are asking us if we can extend HANzero™ and our expertise to their business either at the product level or portfolio levels outside the ETF wrapper. Clearly, there is a huge interest from investors for ESG-related strategies. Environmentally conscious investors can now focus on capital growth, and any carbon emissions linked to their investment will be offset in exciting global climate-positive projects with our partners at South Pole. Though not a glamour project by any stretch, carbon offsetting is an important tool in the fight against climate change. Our hope, in time, is that more of our partners will opt to add the carbon offset function to their ETF, regardless of thematic direction.”

    As you would expect in a developing market like carbon offsets and credits, it is far from perfect. Josh’s estimates of costs are not wholly accurate, pretty close, but the principle that the costs are manageable within a product’s total fees is accurate. This means that the fees are paid out of the TER and not as an additional cost. Given ZERO is 10bps cheaper than the iShares clean energy equivalent, which doesn’t carbon offset, this should be a no-brainer for investors in our opinion.

    As to whether HANzero™ goes far enough in including the full value chain impact, only time will tell. Having opened this door to investors, we will find out. Doing nothing and waiting for 2050 by offering ESG-only approaches definitely isn’t far enough in HANetf’s view.

    We will leave you with a question – if all product providers calculated and offset the carbon impact of an investment and included it as standard, would the world be in a better place? If the answer is yes, then let’s do it. Currently, HANzero™ is an optional extra. Like all optional extras, they pretty much become standard very quickly. Let’s hope!

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