The Global X CleanTech ETF (CTEC) by Mirae Asset is a stock that aims to provide the opportunity for people to invest in companies that focus on creating technologies that prevent or reduce negative environmental impacts. The ETF’s website claims that it specifically selects and invests in companies that are involved in renewable energy production and storage, smart grid implementation, energy efficiency, as well as producing and supplying pollution-reducing products and solutions. The company consists of over 100 financial professionals whose core values include empowerment, exploration, authenticity, and enthusiasm. However, under further investigation of the top ten holdings and a deeper analysis of the ETF, I concluded that the ETF is not, in fact, as clean as its name makes it seem. Therefore, I have awarded the Global X CleanTech ETF 0.13/3 planets.
The Global X CleanTech ETF was created in October of 2020. It currently has 40 holdings and a total of $101.44 million net assets. The ETF, as mentioned in its name, invests in primarily companies that produce or supply clean technology. Some of the top ten holdings include companies such as Solaredge Techno, Samsung, and Vestas Wind Systems. The average ESG score of the top 9 holdings (one of the holdings, HANWHA SOLUTIONS CORP, did not have an esg score) is 22.59. This makes the Global X CleanTech ETF a medium risk level stock. The fact that the ETF has a medium risk level ESG score is counterintuitive considering it is a clean technology ETF that wants to achieve the goal of investing in technologies that prevent or reduce negative environmental impact, yet it invests in companies that have a negative impact on the environment? I would expect an ETF that claims it is committed to preventing and reducing the negative environmental impacts currently present in the world to have a low risk ESG score. This is especially concerning as investigation of some of the top 10 holdings reveals further controversies. For example, Samsung lacks transparency on the disposal of their products and is uncommitted to implementing sustainable and ethical environmental practices, yet is one of the top 10 holdings in this ETF. This implies that the ETF values profit over the environmental impacts of their holdings and are not as committed to their sustainability goals as they may seem.
The Global X CleanTech ETF uses an index that is designed to “track the performance of companies that develop technology or equipment that enables the production of energy from renewable sources, efficient utilization of energy and reduction of negative environmental influences.” Companies are eligible to be a part of the ETF if they generate at least 50% of their revenues from renewable energy production, residential and commercial energy efficiency, smart grid implementation, lithium-ion batteries and/or fuel cells, and the prevention or amelioration of the negative environmental effects of pollution. The ETFs maximum number of holdings is 40 and in addition to the above requirements, eligible companies must also meet some other criteria. These include: having a minimum total market capitalization of $500 million if they are not current index constituents and $400 million if they are current constituents, and having an average daily turnover of at least $2 million over the last six months if they are not current index constituents and $1.4 million for existing constituents. While these criteria sound sustainable, there is a lot of room for unsustainability to creep through. For example, if the Global X CleanTech ETF only requires eligible companies to generate 50% of their revenue from renewable energy production, the other 50% of their revenue could be generated from fossil fuel production. These requirements set out by the managers of the ETF may be a decent starting point, but they seem to be too vague and lack detail, making it easy for unsustainable companies to slip into the mix.
The ETF is managed by John Belanger, CFA, Nam To, CFA, Wayne Xie, Kimberly Chan, and Vanessa Yang, all of whom have been the portfolio managers since the ETF’s inception, December of 2020. Belanger graduated with a degree in math and philosophy, as well as a JD. The other portfolio managers have degrees in similar fields including economics, finance, and psychology. None of the portfolio managers seem to have the necessary background, expertise, or experience in sustainability or environmentalism in order to successfully manage a cleantech ETF. I strongly believe passionate and knowledgeable sustainability and environmental professionals should be added to the team in order to help refine, improve, and add their invaluable perspectives to the ETF.