Investing in Climate Adaptation & Mitigation

A new report[1] by the Intergovernmental Panel on Climate Change (IPCC) states that the trajectory of greenhouse gas (GHG) emissions projects that warming will likely exceed 1.5°C this century. At the same time, significant gains have been made in climate adaptation and mitigation across all sectors and regions. With this historical growth has come more affordable, accessible, and competitive green products and companies.

In an effort to capture more of this growing market, we created the TrueShares ESG Active Opportunities ETF. This actively-managed fund uses fundamentals to invest in companies we’ve identified as demonstrating leadership on climate change adaptation and mitigation solutions. All of ECOZ’s holdings align with the following themes demonstrating potential high growth and return projections.

Renewable Energy includes companies producing power from solar, wind, geothermal, or other non-fossil fuel sources, including biofuels. By 2050, global energy demand is projected to potentially increase 50%[2] over today’s consumption. Meanwhile, demand for oil and coal is projected to decline significantly[3]. Fossil fuels will likely be replaced by renewables, for which costs have declined dramatically and investment has grown exponentially[4].

Energy Efficiency/Electrification includes companies making products for the electric vehicle market or products with higher energy efficiency than industry standards. Amidst California banning new gas stations[5] and the Department of Energy enhancing efficiency standards for air conditioners[6], it’s clear to us this theme has growth and return potential. The demand for EV batteries alone is expected to potentially grow six-fold by 2035[7].

Sustainable Design includes companies implementing circularity programs in manufacturing and the design of end products. By considering recyclability, reusability, durability, and longevity at every stage in the project process[8], these companies exemplify high standards in governance and innovation that we feel make them attractive investments for the long term.

Resource Conservation includes companies focused on reducing inputs based on recycling, efficient procurement, and/or more sustainable materials. This theme highlights a company’s sense of financial responsibility and adaptability. We believe such companies can make for less risky investments across sectors given persistent supply chain issues caused by geopolitical events, tight labor markets, inflation, energy shortages, and extreme weather[9].

Green Building includes companies providing products and services that allow buildings to operate with lower energy use. Currently, energy use for commercial and residential buildings produces 17.5% of global GHG emissions[10]. As stricter energy efficiency standards[11] are buoying this sector, it is also poised to grow as the global population approaches a projected 10 billion people by 2050[12].

Sustainable Agriculture includes companies using regenerative agriculture, sourcing from local farms, practicing responsible animal welfare, and/or utilizing fair trade and organic ingredients. Agriculture contributes anywhere from 18%[10] to 31%[13] of global GHG emissions, making it a significant source for climate change mitigation investment as the growing global population will need roughly 70% more food by 2050[14].

Water Purity/Conservation includes companies that make products for water treatment and distribution or that operate water utilities with a focus on higher efficiency and safety. The recent bouts of droughts and floods in California[15] illustrate the urgent need for water infrastructure, efficiency, and regulation.

Environmental Education includes companies working to inform the public about environmental issues, such as climate change. Education is a powerful component of addressing climate change that can have a compounding effect across communities and generations[17]. The more people who are well-informed of the issues and how to address them, the more demand there will be for the aforementioned themes that are essential for the continued pursuit of climate adaptation and mitigation.

Sustainable Investments includes financial services companies with a focus on ESG and/or climate change mitigation. The new IPCC report[1] notes that while there is sufficient global capital, the current flow falls short of the levels needed to adapt to and mitigate climate change in all regions and sectors. Alongside technology and international cooperation, the IPCC lists finance as one of the key enablers of necessary climate action.

Given this crucial role that finance plays in climate mitigation and adaptation, ECOZ is designed to direct capital flow toward these growing themes. Our process involves in-depth fundamentals to craft a diversified, actively-managed portfolio with the aim to produce significant impact and strong capital gains.

*Forecasts are inherently limited and should not be relied upon when making investment decisions. There is no guarantee the projected growth will occur. In addition, substantial industry growth does not guarantee positive investment returns and may lead to significant volatility. 

The TrueShares ESG Active Opportunities ETF (ESG ETF) is also subject to the following risk: Environmental, Social, Governance Risk – Applying ESG and sustainability criteria to the investment process may exclude securities of certain issuers for non-investment reasons and may cause the Fund to forgo some market opportunities available to funds that do not use ESG or sustainability criteria. ESG considerations may affect its exposure to certain sectors and/or types of investments, and may adversely impact the Fund’s performance depending on whether such sectors or investments are in or out of favor in the market. In addition, the Fund’s investments in certain companies may be susceptible to various factors that may impact their businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and clean energy initiatives, the effects of general economic conditions throughout the world, increased competition from other providers of services, unfavorable tax laws or accounting policies and high leverage.