ESG Investing Reviews: iShares Global Clean Energy UCITS ETF

If you are new to investing and would like to start in an ethical way, or if you are looking for ethical options to add to your portfolio, this series will hopefully help.  I am also relatively new to investing and am writing these as much as a way to learn more about ESG investing as well as the tools available to understand my investments better.  

I will be reviewing a range of funds and ETFs, highlighting their key features and things to look out for.  All will be available to UK Stocks and Shares ISA investors on common platforms such as Trading 212, Freetrade and Interactive Investor.  If you are thinking of opening accounts on any of these platforms please see the end of the post for referral links.

Overview

The iShares Global Clean Energy ETF (INRG) contains holdings in 30 alternative energy companies from around the world.  Holdings are weighted towards the US and renewable energy, such as solar and wind.  It is managed by Blackrock and has been in existence since 2008.  It physically replicates the S&P Global Clean Energy Index, meaning that it holds either all or a proportion of this index and very closely mirrors its performance.

This ETF is distributing, so will pay dividends.  There is no accumulative version.

Performance

INRG was the top performer out of 52 funds in the World Energy Morningstar category over the past 3 years, based on total return.  

The chart shows the hypothetical growth of $10,000 invested at inception.  

As the start of the fund correlated with the 2008 stock market crash, the investment went down to a low of $1320 in 2012, but in the next chart you can see the performance over the last three years.

The chart below shows average annual return over the 1 year, 3 year, 5 year and 10 year time periods.

I compared this with the performance of another iShares global energy fund, except one that focuses on oil and gas energy (ICX or iShares Global Energy ETF) – below.  This fund’s top holdings are in Exxon Mobil and Chevron Corp and you can see that INRG outperforms this across all of the timeframes, with the exception of the return since inception.

Management fees

Fees for this fund are 0.65%.

Holdings 

INRG is mostly made up of equity holdings in “clean energy” companies.  Although it is a global fund, it is strongly weighted towards the US, followed by China, New Zealand and Denmark. 

The key holdings sit in the Utilities, Industrials and Information Technology sectors.

As some examples, the top holding at 5.68% at the time of writing – Plug Power Inc (Ticker: PLUG) – is a US company making hydrogen and fuel cell systems.  This company’s value has shot up in the last few months and skewed the weightings of the fund, which is mostly focussed on more mature technologies such as wind and solar.  Another top holding is Verbund AG, at 4.84%.  This an Austrian company that generates electricity through hydropower and wind.  The full breakdown of holdings can be found here.

ESG credentials

So, how “green” is this fund?

MSCI has a fascinating free tool that you can use to check the ESG ratings of funds you are interested in.

Based on MSCI ESG ratings, the fund scores an A overall with 36% of the holdings scoring in the highest group AA and above. 

Out of interest, I compared this with the overall score for the “traditional” energy fund mentioned above (IXC) which also scores A.  This was a surprise as I would have expected a fund focussed on alternative energy to score much higher than one focussing on traditional and more polluting energy sources, but this is because the ratings factor in more than just the environmental impact.

Where you see the clearest distinction is in the scores for carbon intensity.  You can see below that INRG has a very low percentage of revenue from “brown” energy and also a moderate carbon intensity.

ICX, in comparison, scores “high” for carbon intensity and is mostly made up of brown revenue.

You can also see the percentage of companies in the IXC fund which have recorded violations of the UN Global Compact, breached OECD guidelines, and other “social” concerns.

In contrast, no red flags come up at all with INRG.

The MSCI is also a good way to compare two ESG funds as you can see their relative strengths.  For example, I compared INRG with Impax Environmental Markets GBP Acc which invests in similar industries and have a similar ESG rank in the alternative energy sector, except that INRG is more carbon intensive (167 tonnes compared to 233 tonnes) although they both classify as Moderate.  Overall, based on the similar ESG rank, INRG’s better performance and Impax’s higher management fees I now feel I have a more rounded perspective.  

I am conscious that my investments in alternative energy are quite high in relation to the rest of my portfolio and that usually a thematic focus should be a satellite rather than a core investment, so have been cutting down what I am putting in this area and will focus more on INRG than Impax.  

Who this is for – and things to think about

INRG may suit somebody who wants to actively invest in alternative energy infrastructure, either as a new investment or a replacement after divesting from traditional energy investments.  

As you can see from the movement after the last three years, the fund is prone to volatility.  The price shot up after Biden’s win and focus on the Green New Deal, and it has developed a reputation as a “meme” ETF with many fearing a correction in the near future.  As predicted, the value has fallen over the last few months, and those who are buying it now are thinking in terms of long timeframes (5-10 years).

While some are looking at government targets for carbon neutrality as a reliable driver for growth in this sector, others argue that any focus on these types of technologies is a “bet against” nuclear fusion, pointing at the advances being made in that area.  

As a “thematic” investment, it lends itself more to being a “satellite” investment, i.e. a smaller supplement to your core, more stable, portfolio.

I have been investing in this ETF for four years and after seeing the growth over 2019 and 2020 did get a little carried away, as it has been one of the main funds I have invested in over this time. It now represents around 15% of my portfolio.  I’m planning to keep my investments but to stop buying more shares so that it becomes a smaller part of my portfolio.

How to invest in it

This ETF is available on Trading 212 (click here for a free share), Freetrade (referral link) and Interactive Investor (comment below if you are interested in a referral offering no service fees for a year, saving £120).

INRG is traded on the London Stock Exchange and therefore available to buy in the UK.  The version traded on Nasdaq has the ticker ICLN.

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