iClima Earth, a London-based research firm focused on environmental impact investing, is set to launch the world’s first ETF providing exposure to companies promoting the decentralization of energy generation.
The iClima Distributed Renewable Energy UCITS ETF will list on London Stock Exchange later in June and will be available in US dollar (DGEN LN) and pound sterling (DGEP LN) share classes.
The fund is being brought to market in collaboration with London-based white-label ETF platform HANetf.
Distributed renewable energy refers to the creation and efficient management of green energy close to the point of use, for example through solar panels and smart meters installed at home.
The model offers a sustainable and cost-efficient alternative to the aging and increasingly obsolete centralized electric power system and, by collecting energy from many sources, also increases the security of electricity supply.
Several decarbonizing technologies make up the distributed renewable energy industry. These include solar panels, energy storage systems, smart meters, smart grids, vehicle-to-grid energy, electric vehicle charging, and smart inverters. These technologies can offer many benefits such as helping with frequency control and demand response, mitigating the overload of dated transmission lines, supporting continuous balancing of the electricity supply, and increasing the overall reliability of the grid.
According to iClima Earth, these benefits will drive an expected $846 billion investment into distributed renewable energy solutions over the next decade.
The fund tracks the proprietary iClima Distributed Renewable Energy Index which selects its constituents from a universe of stocks listed in developed or emerging markets excluding China. Eligible firms must have market capitalizations greater than $200 million.
The methodology screens for companies that derive at least 20% of their revenue from seven segments of the distributed renewable energy value chain: distributed power sources, distributed energy storage, vehicle-to-grid and electric vehicle charging, virtual power plants, microgrids and smart grids, smart houses and building energy management, and software and systems for distributed energy resources.
A final screen removes companies with revenue exposure to undesirable activities that exceeds certain thresholds. This includes firms with any exposure to oil exploration or non-conventional weapons, more than 1% from coal-derived energy generation, more than 10% to the production of conventional armaments, more than 20% to nuclear energy, more than 40% to the sale of internal combustion engines, and more than 50% to natural gas.
Constituents are equally weighted in the index which is reconstituted and rebalanced on a semi-annual basis.
The index currently consists of 50 stocks with over half (56.8%) of the total weight allocated to companies listed in the US. Stocks listed in Europe make up less than a third (29.7%) of the index weight, while the remaining 13.5% is allocated to stocks listed in Asia.
The ETF will come with an expense ratio of 0.69%.
The fund follows on from the launch of iClima Earth’s first ETF, the iClima Global Decarbonisation Enablers UCITS ETF (CLMA LN), which debuted on LSE in December 2020. This fund tracks the proprietary iClima Global Decarbonisation Enablers Index consisting of companies globally that are offering innovative solutions enabling CO2 emissions avoidance. It comes with an expense ratio of 0.65% and currently houses $50 million in assets.
Gabriela Herculano, CEO of iClima Earth, said: “Our aim is to redefine climate change investments by shifting the focus from companies’ emission reduction actions to organizations offering products and services that enable carbon avoidance solutions. These “climate champions” are companies delivering impactful solutions measured by potential avoided emissions of their products. Our new decentralized renewable energy ETF offers investors the opportunity to do this by investing in companies at the forefront of the huge and rapidly growing distributed generation renewable energy market.”
Hector McNeil, co-CEO of HANetf, added: “iClima has a unique and exciting positive approach to investing in companies that are at the forefront of fighting climate change, and we are delighted that they are working with us to develop their ETFs. iClima is well-positioned to capitalize on the growing focus from investors on ESG.”