Morningstar
ESG Investing

600 Ways to Invest in the Fight Against Climate Change

We sort out the climate-focused fund landscape to help investors all over the world decarbonize their portfolios - and help finance the transition to a low-carbon economy.

Sylvester Flood 15 February, 2022 | 2:28AM Sunniva Kolostyak
Facebook Twitter LinkedIn
Font-Size

Firefighter in front of wildfire
Find Climate Funds You Can Buy Right Now

Investors have a growing number of choices to seize climate-change-related opportunities, as well as to mitigate climate risk in their portfolios. Use this table to find funds available in your country.



How We Look at Climate Product Options

We divide climate products into five categories:

  1. Low Carbon funds seek to invest in companies with reduced carbon intensity and/or carbon footprint relative to a benchmark index. These funds are well diversified.

  2. Climate Conscious funds select or tilt toward companies that consider climate change in their business strategy and therefore are better prepared for the transition to a low-carbon economy. These funds are also well diversified.

  3. Climate Solutions funds only target companies that are contributing to the transition to a low-carbon economy through their products and services and that will benefit from this transition. These funds are less well-diversified and tilt toward industrials and technology.

  4. Clean Energy/Tech funds invest in companies that contribute to or facilitate the clean energy transition. These funds are concentrated in the industrials and technology sectors.

  5. Green Bond funds invest in debt instruments that finance projects facilitating the transition to a green economy.


This graphic indicates the different roles that these strategies play in portfolios.

Climate Strategies and Their Role in Portfolios

Many Choices, But Relatively Few Have Long Track Records

The good news is that the investment industry has introduced a multitude of new funds globally to capture investor interest in investing in climate change, or, if you like, the energy transition.

Yet, many of these choices are unproven and much more volatile than diversified equity funds. As of the end of last year, US-domiciled climate tech funds had an average three-year standard deviation of 29.5 versus 18.4 for the Vanguard 500 fund, which tracks the S&P 500 benchmark. (Standard deviation is a measure of risk. The higher the number, the riskier the asset has been in the past.)

That’s where the Morningstar Rating for funds, known as the star rating, comes in. We've sorted the table above by this rating, which measures whether a fund has performed well on a risk-adjusted basis against its peers. For more background on its use and efficacy, read this column from Morningstar’s funds columnist John Rekenthaler.

This article contains material from Morningstar authors Jon Hale, Hortense Bioy, and Elizabeth Stuart

Read This Before You Start Investing in Sustainable Funds

More Resources

TAGS
Facebook Twitter LinkedIn
Font-Size

About Author

Sylvester Flood  is Morningstar's Chief Content Strategist.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility

The Morningstar Star Rating for Stocks is assigned based on an analyst's estimate of a stocks fair value. It is projection/opinion and not a statement of fact. Morningstar assigns star ratings based on an analyst’s estimate of a stock's fair value. Four components drive the Star Rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s fair value, (3) our uncertainty around that fair value estimate and (4) the current market price. This process culminates in a single-point star rating that is updated daily. A 5-star represents a belief that the stock is a good value at its current price; a 1-star stock isn't. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Morningstar Star Rating for Stocks, please visit here

Quantitative Fair Value Estimate represents Morningstar’s estimate of the per share dollar amount that a company’s equity is worth today. The Quantitative Fair Value Estimate is based on a statistical model derived from the Fair Value Estimate Morningstar’s equity analysts assign to companies which includes a financial forecast of the company. The Quantitative Fair Value Estimate is calculated daily. It is a projection/opinion and not a statement of fact. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Quantiative Fair Value Estimate, please visit here

The Morningstar Medalist Rating is the summary expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. The Medalist Ratings indicate which investments Morningstar believes are likely to outperform a relevant index or peer group average on a risk-adjusted basis over time. Investment products are evaluated on three key pillars (People, Parent, and Process) which, when coupled with a fee assessment, forms the basis for Morningstar’s conviction in those products’ investment merits and determines the Medalist Rating they’re assigned. Pillar ratings take the form of Low, Below Average, Average, Above Average, and High. Pillars may be evaluated via an analyst’s qualitative assessment (either directly to a vehicle the analyst covers or indirectly when the pillar ratings of a covered vehicle are mapped to a related uncovered vehicle) or using algorithmic techniques. Vehicles are sorted by their expected performance into rating groups defined by their Morningstar Category and their active or passive status. When analysts directly cover a vehicle, they assign the three pillar ratings based on their qualitative assessment, subject to the oversight of the Analyst Rating Committee, and monitor and reevaluate them at least every 14 months. When the vehicles are covered either indirectly by analysts or by algorithm, the ratings are assigned monthly. For more detailed information about these ratings, including their methodology, please go to here

The Morningstar Medalist Ratings are not statements of fact, nor are they credit or risk ratings. The Morningstar Medalist Rating (i) should not be used as the sole basis in evaluating an investment product, (ii) involves unknown risks and uncertainties which may cause expectations not to occur or to differ significantly from what was expected, (iii) are not guaranteed to be based on complete or accurate assumptions or models when determined algorithmically, (iv) involve the risk that the return target will not be met due to such things as unforeseen changes in changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, tax rates, exchange rate changes, and/or changes in political and social conditions, and (v) should not be considered an offer or solicitation to buy or sell the investment product. A change in the fundamental factors underlying the Morningstar Medalist Rating can mean that the rating is subsequently no longer accurate.

For information on the historical Morningstar Medalist Rating for any managed investment Morningstar covers, please contact your local Morningstar office.

For more detailed information about conflicts of interest, including EU MAR disclosures, please see the “Morningstar Medalist Rating Analyst Conflict of Interest & Other Disclosures for EMEA”here

Select Your Site Edition To make sure the site is relevant to you, we need to know if you’re an individual investor or a financial professional.