WisdomTree has launched a new thematic equity ETF in Europe targeting companies that are supporting decarbonization efforts by recycling waste into energy.

Christopher Gannatti, Global Head of Research at WisdomTree.

The WisdomTree Recycling Decarbonisation UCITS ETF has been listed on London Stock Exchange in US dollars (WRCY LN) and pound sterling (RECY LN) as well as on Deutsche Börse Xetra (WTRD GY) and Borsa Italiana (WRCY IM) in euros.

Waste-to-energy is the process of generating renewable natural gas (RNG) or renewable natural diesel (RND) from waste such as garbage, animal manure, agriculture products, and animal fats.

RNG and RND can then be used to generate electricity or as a transportation fuel for certain vehicles.

RND produces 50% to 80% fewer greenhouse gases than conventional diesel, while RNG can produce negative emissions if methane collected from waste is used as a replacement for higher emitting energy products such as gasoline.

Waste-to-energy technologies have been touted as an important tool in achieving global decarbonization targets which aim to reduce the current 50 billion tons of annual global greenhouse gas emissions to net-zero by 2050.

Christopher Gannatti, Global Head of Research at WisdomTree, said: “Reducing the speed and effects of climate change is one of the greatest challenges facing humanity today. Moving to renewable and sustainable sources of energy is fundamental to our ability to limit greenhouse gas emissions and keep global warming below 2 degrees Celsius above pre-industrial levels. Current methods of decarbonization require further investment to make the desired impact but innovative solutions like waste-to-energy and carbon recycling represent new investable themes that can make a difference today.”

Methodology

The fund gains its exposure to the underlying theme by tracking the Tortoise Recycling Decarbonization UCITS Index which was developed in partnership with TortoiseEcofin, a Kansas-based sustainable investment manager with roughly $10 billion in assets under management.

The index selects its constituents from a universe of developed and emerging market stocks with market capitalizations greater than $200 million and average daily trading volumes above $1m.

A light ESG screen removes companies that are violators of global norms or have material exposure to controversial weapons, tobacco, or thermal coal.

The methodology then uses GICS sector classifications as well as analysis of company documents to screen for firms with significant revenue, operating profit, assets, or capital expenditures dedicated to the waste-to-energy theme. Firms must have at least a 20% exposure to be eligible for inclusion.

Constituents are initially equally weighted and then adjusted based on their thematic exposure and carbon emission profiles, according to four Tiers:

Tier 1 stocks, defined as those firms which have greater than 50% thematic exposure and which generate negative carbon emissions (i.e., the carbon avoided based on their renewable products and recycling is greater than their Scope 1 and 2 emissions), have their weight doubled.

Tier 2 stocks, those which have between 20% and 50% thematic exposure and which generate negative carbon emissions, have their weight multiplied by 150%.

Tier 3 stocks, those which have greater than 50% thematic exposure but which generate positive carbon emissions, have no change made to their weight.

Tier 4 stocks, those which have between 20% and 50% thematic exposure and which generate positive carbon emissions, have their weight decreased by 25%.

Individual constituents are capped at 7%, while the weight of all stocks above 5% is also capped at 35%. The index is reconstituted and rebalanced on a semi-annual basis.

The ETF comes with an expense ratio of 0.45% and is classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

Alexis Marinof, Head of Europe at WisdomTree, added: “WRCY is the world’s first ETF focused solely on recycling and decarbonization, representing a big step forward for the industry as thematic ETFs continue to attract the interest of European investors looking for long-term growth opportunities.  Our approach to launching thematic ETFs is focused on leveraging the in-depth market intelligence that only specialist sector experts like TortoiseEcofin can provide. Investors want purity of exposure when investing in themes underpinning structural megatrends, and that’s what we deliver in our suite of thematic ETFs.”