IQ Cleaner Transport (CLNR) ETF

overall rating:

0.8

planets

Chiara Savanco
3/12/2022
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The CLNR IQ Cleaner Transport ETF is a passively-managed fund which replicates the IQ Cleaner Transport Index, aiming to give exposure to companies involved in the transition towards greener transportation. I gave it a relatively low sustainability rating mainly because of issues with the top holding companies, and a lack of transparency in how the ETF is constructed. Cons: Some of the top holding companies (notably, Volkswagen) have controversial ESG performance; the fact that they are included in the portfolio signifies the funds’ prioritization of large-cap. holders above ESG-abiding ones. The holding selection process is not clearly articulated by the IndexIQ company, which casts doubts on its rigor. The selection criteria operate on the green intentionality of companies, which I judge as an insufficient demand for a fund which advertises itself as ‘environmental’. Pros: The fund is managed by a renowned leader in sustainable finance, with extensive expertise in ESG. The managing company offers different socio/environmental oriented ETFs, showing a degree of awareness for ‘responsible’ finance. I deduce that the issues with the CLNR ETF are not a result of mala fide, but analysing the contents of the fund cannot produce a very positive review. 

What it's made of:

0.5

CLNR IQ Cleaner Transport ETF has a net asset value of $6.44 million, distributed among 80 holdings as of December 2021. The top ten holdings (Schneider Electric, 3.39%, Volkswagen, 3.22, Nextera Energy Inc. 3.21, CSX Corporation, 3.13, Siemens AG, 3.13, Intel Corporation, 3.13, Iberdrola SA, 3.12, Union Pacific Corporation, 3.11, Taiwan Semiconductor Manufacturing CO, 3.07, Eaton Corporation PLC, 3.06) are international. This enables a diversified equity exposure in developed markets, which is good to incentivize investment in clean transport for the risk-averse investor. The holdings are all weighted at a medium ESG risk, which is a cause for concern. Volkswagen, for instance, was among the car manufacturing companies involved in the ‘dieselgate’ accident in 2015; it admitted to fitting ‘defeat devices’ onto 11 million diesel vehicles to cheat emission tests, and thus to sidestep sanctions related to above legal-threshold Nitrogen oxide emissions. The fact that the funds still invests in Volkswagen, and that Volkswagen is its second-biggest equity holder suggests that the CLNR portfolio manager prioritizes investing in big-cap. companies, to raise income from the fund, over ESG standards. The presence of ‘Taiwan Semiconductor Manufacturing Co’ assets in the portfolio is another issue. On one hand, including a semiconductor firm in a clean transport ETF is commendable, seen as semiconductor innovation contributes to decreasing costs of electric vehicles, and therefore this ETF does a good job in selecting impactful actors and vanguard techniques for the transport transition. However, TSMC’s sustainability performance relative to manufacturing processes is worrying; in 2019, it consumed about 63m tons of water, often ridding local farmers of water resource in that year’s severe drought. Despite boasting the “integration of green management in daily operations” and “water, waste and air pollution management”, TMSC has already postponed its goals of sourcing 100% of energy from renewables to 2050, showing a lack of true environmental intentionality. Although one shouldn’t over-emphasize the fund’s liability for environmentally-questionable behavior of its holdings, we can recognize that CLNR’s description of a fund which helps ‘support the transition to more environmentally efficient transportation technologies’ is greenwashing.

How it's made:

0.5

CLNR tracks the IQ CANDRIAM Cleaner Transport Index, made to expose investors to stocks of companies that have a mission towards a greener future and operate in technology, industrials and consumer discretionary sectors (i.e electric vehicles). The fund factsheet is not transparent in explaining exactly how the top-holding companies are selected, which is a red flag. It does say that selected companies are those which “offer, support or enable cleaner transportation products and services”; therefore, this index operates on the green intentionality of companies, rather than on their certified green performance- indeed, the fund is called the cleaner (as opposed to ‘clean’) transport fund. It is reasonable to assume that the sustainability requirements of selected holding companies are very lax, and it is easy for holders to make their way into the portfolio under the guise of ‘good intentions’ rather than by meeting a set threshold of income by renewable energy, as other funds specify. From this perspective, the ETF’s name is a clear marketing strategy to convince investors they are contributing to a greener future- but it isn’t guaranteed that it actually works towards green transport. On a positive note, the portfolio is spread across six different sectors (Industrials, Consumer Directionary, Information Technology, Utilities, Communication Services, Materials); this fits with the comprehensive market approach that is required for an effective green transition. The multi-sectoral spread also reduces volatility and risk through portfolio diversification, which encourages investment in ‘cleaner energy’.  

Who makes it:

1.5

CLNR ETF is managed by IndexIQ, a company affiliated with the New York Life Investment company. The first thing I noticed is the unbalanced gender ratio in the company’s executive board and portfolio manager team; they are both overwhelmingly dominated by middle-aged white males. Thus, the fund managers could do better in aspects related to sustainable governance. A commendable aspect, however, is that the company offers different social/environmental-related funds, like the ‘Engender Equality’ and the ‘Clean Oceans’ ETF, displaying some level of an ethic-based approach to finance. The CLNR ETF is managed by Naïm Abou-Jaoudé, CEO of Candriam and renowned leader in sustainable finance; in 2017, he was recognized as the best CEO in Sustainable Investing. His educational background includes Political Studies, which makes it likely that his approach to investing is actually more mindful and aware than that of other asset managers. The CLNR manager’s background is promising for the intentionality behind the CLNR ETF.

Sources:

https://www.newyorklifeinvestments.com/who-we-are/our-leaders/executives 

https://www.theguardian.com/environment/2021/sep/18/semiconductor-silicon-chips-carbon-footprint-climate 

https://cleanairclaims.co.uk/environmental-impact/#:~:text=Volkswagen%20violated%20the%20Clean%20Air,to%20reduce%20air%20pollution%20nationally

https://esg.tsmc.com/en/focus/APractitionerofGreenPower.html 

https://www.newyorklifeinvestments.com/assets/documents/index-iq/clnr-iq-cleaner-transport-etf-fs.pdf 

https://www.sustainalytics.com/our-solutions?utm_term=&utm_campaign=Leads-Search-20&utm_source=adwords&utm_medium=ppc&hsa_acc=4619360780&hsa_cam=11145778763&hsa_grp=108965194933&hsa_ad=514798435870&hsa_src=g&hsa_tgt=dsa-390170183270&hsa_kw=&hsa_mt=&hsa_net=adwords&hsa_ver=3&gclid=Cj0KCQjw29CRBhCUARIsAOboZbI_mO_Pa8q77A2O7MRwIpXptJ4W7BXehBC2j2p_PW9z9CFTRNItwKgaAnwGEALw_wcB

https://www.morningstar.co.uk/uk/