Best performing ESG ETFs in 2021

When it comes to investing according to environmental, social, and governance (ESG) criteria, investors often worry about sacrificing returns. Well, here is a list of 20 ESG ETFs that can ease their fears. 

Top 10 ESG ETFs in Americas 

Here are the 10 most ESG ETFs in Americas based on 2021 performance.

1. KraneShares Global Carbon Strategy ETF: +108.78%
2. North Shore Global Uranium Mining ETF: +78.61%
3. Horizons Global Uranium Index ETF: +72.67%
4. Global X Uranium ETF: +58.22%
5. Global X Lithium & Battery ETF: +37.35%
6. Invesco Real Assets ESG ETF: +35.92%
7. SP Funds S&P 500 Sharia Industry Exclusions ETF: +35.89%
8. KraneShares European Carbon Allowance ETF: +34.31%
9. First Trust ISE Water Index Fund: +31.87%
10. Invesco S&P 500 ESG Index ETF: +31.75% 

#1: KraneShares Global Carbon Strategy ETF

A global energy crisis with Europe as its epicenter and an annual climate summit (COP26) fired up the Carbon Allowances market in 2021. In Europe, limited gas supplies have driven up electricity prices and resulted in increased coal output. That, in turn, has fed demand for carbon allowances. The European benchmark price for carbon allowances (EUA Mar'22) rose from €32.8/tonne of CO2 to a record high of €89.09 on December 8th, 2021, before settling at €79.95 at year-end (+144%).

In America, California's carbon allowances and Regional Greenhouse Gas Initiative rose but to a lesser extent — by 67% and 75% year-on-year respectively, according to the latest auctions held in November.

The California’s cap-and-trade program accounts for roughly 85% of all emissions in the state and covers large industrial plants, large electric power plants, and natural gas and petroleum distributors. The RGGI on the other hand — is comprised of states located in the Northeast and includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia. Each individual state has its own carbon dioxide trading programs that are based on RGGI parameters.

One contributing factor to the rally in allowance prices in both American markets is looming program reviews. Regulators on both the East and West coasts may seek to reduce the emission caps if states are to meet their climate goals

Adding fuel to the fire is the COP26 — the annual summit on climate change. The 12-day global meetup had the carbon credits and carbon offsets as the centerpiece and highlighted in Article 6 of the Paris Agreement. The Article governs the structure of carbon credits and carbon offsets. Once realized, Article 6 would solidify the foundation for an international carbon credit market that was first laid out in the Kyoto Protocol, leading to the establishment of a UNFCCC-compliant regulated carbon market.

With exposure to European Union Allowances (EUA, 61%), California Carbon Allowances (CCA, 28%) and the Regional Greenhouse Gas Initiative (RGGI, 5%) futures, the KraneShares Global Carbon Strategy ETF (KRBN) shot up by over +100% in 2021. 

The carbon hype grew KRBN's net assets by more than 9,400% this year after netting $1.18 billion of net inflows. The fund's net assets settled at $1.62 billion at year-end. KRBN charges 0.78% in annual fees and trades on the New York Stock Exchange.

Top 10 ESG ETFs in Europe

On the European front, the following 10 ESG ETFs took the lead in 2021. 

1. SparkChange Physical Carbon EUA ETC: +43%
2. Xtrackers MSCI USA ESG UCITS ETF: +32.37 %
3. BNP Paribas Easy MSCI USA SRI S-Series PAB 5% Capped UCITS ETF: +32.34%
4. Lyxor MSCI USA ESG Leaders Extra (DR) UCITS ETF: +32.03%
5. Invesco S&P 500 ESG UCITS ETF: +31.49%
6. Amundi Index MSCI USA SRI UCITS ETF: +31.46%
7. Amundi S&P 500 ESG UCITS ETF: +31.37%
8. UBS ETF (IE) S&P 500 ESG UCITS ETF: +31.27%
9. CSIF (IE) MSCI USA ESG Leaders Blue UCITS ETF: +31.25%
10. Franklin S&P 500 Paris Aligned Climate UCITS ETF: +31.13%

#1: SparkChange Physical Carbon EUA ETC

With exposure to the high-flying European Union carbon Allowances, the SparkChange Physical Carbon EUA ETC (CO2) took off despite a late 2021 launch. But, unlike KRBN, CO2 provides physical exposure to EUAs, which means — each share of SparkChange CO2 is physically-backed by one EUA. 

The EUAs held within the ETC structure cannot be used by polluters, ensuring direct and positive environmental impact. In contrast, futures-based products like KRBN do not affect the supply of EUAs. Since its inception on October 18th, 2021, the ETC attracted over $180 million in net flows, ending the year with $205 million in net assets. CO2 has an expense ratio of 0.89% and trades on the London Stock Exchange in three currencies (USD, EUR, and GBP).

Keep reading:

• 5 things you should consider when buying ESG ETFs

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