It has never been more important than today to take an active role in the ongoing green transition. Via an ESG ETF, contribute to the transformation of the high-carbon economy to a carbon-neutral one2.
Governments have lately significantly increased their efforts to drive this radical transformation that will address every aspect of the climate crisis, from pollution and loss of biodiversity to waste and toxic emissions. Initiatives on a global scale to align different countries’ interests and efforts have multiplied in the last years, as the recent Paris Climate Agreement and the European Green Deal3 show.
This has been reflected in the financial sector with investors looking to make a concrete impact, besides pursuing mere financial returns. However, ESG investment strategies have also proved to deliver consistent financial performance over time, thus combining environmental factors and investors’ returns. For example, the VanEck Sustainable World Equal Weight ETF has registered a performance exceeding 100% since 2013, as of 16/5/224.
The SFDR was introduced by the European Commission in 2021 and sets out mandatory ESG disclosure obligations for asset managers and other market participants. The goal is to improve the transparency of sustainability risks and the impacts of investment processes and strategies. SFDR articles 8 and 9 signal the highest possible sustainability levels for financial products.
1 20 years ago UN has launched a set of principles to help contributing to a better world. More than 12.000 companies in more than 160 countries have adhered. These principles concern areas like environment, work, human rights and corruption.
In December 2019, the European Commission presented the European Green Deal, its flagship plan that aims to make Europe’s economy carbon neutral by 2050.
4 Source: VanEck. Past performance is not guarantee of future returns.
5 Source: Hydrogen (europa.eu).
Liquidity risk exists when a particular financial instrument is difficult to purchase or sell. If the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous or reasonable price, or at all. This is a factor to consider before investing in an ESG ETF.
ESG ETF may invest a relatively high percentage of its assets in a smaller number of issuers or may invest a larger proportion of its assets in a single issuer. As a result, the gains and losses on a single investment may have a greater impact on the Fund's Net Asset Value and may make the Fund more volatile than more diversified funds. That is another factor to take into account when considering an investment in an ESG ETF.
The securities of smaller companies may be more volatile and less liquid than the securities of large companies. Smaller companies, when compared with larger companies, may have a shorter history of operations, fewer financial resources, less competitive strength, may have a less diversified product line, may be more susceptible to market pressure and may have a smaller market for their securities. That is one of the factors to take into account when considering an investment in an ESG ETF.
The value of an investment in an ESG ETF can be affected by exchange rate fluctuations. The price of the euro can rise against another currency in which an investment is denominated. Thus, this is one of the factors to consider before investing in an ESG ETF.
The value of the securities held by an ESG ETF may fall suddenly and unpredictably due to general market and economic conditions in markets in which issuers or securities held by the fund are active. Therefore, this is s further factor to take into consideration when investing in an ESG ETF.
For more information on risks, please see the “Risk Factors” section of the relevant Fund’s prospectus, available on www.vaneck.com.