Invesco Teams Up with Varma for Climate-Focused ETF Amid ESG Divestment

Atlanta-based Invesco has introduced a climate-focused ETF with $1.6 billion seed funding from Finland's Varma. Designed to track the MSCI ACWI Select Climate 500 Index, this ETF aims to offer a global portfolio of sustainable businesses while maintaining competitive returns. ESG investing faces challenges despite ongoing investor interest.

As some U.S. investors pull assets out of sustainable funds, Atlanta-based Invesco has launched a new climate-focused exchange-traded fund (ETF) with seed funding of $1.6 billion in assets from Finland's Varma Mutual Pension Insurance Company.

It hopes the Invesco MSCI Global Climate 500 ETF will serve as a core holding that includes environmental considerations while also delivering competitive returns, said Brian Hartigan, interim global head of ETFs and indexed securities at Invesco. The index that underlies the new ETF was custom-designed by MSCI for Varma. Designed to track the MSCI ACWI Select Climate 500 Index, it includes companies in the market-capitalization weighted MSCI ACWI ex Select Countries Index, screened to identify those with greenhouse gas emissions reduction targets that fit Varma's goal of backing a shift away from fossil fuels.

"This offers access to a global portfolio of sustainable businesses without being too customized or restrictive on the minutiae" of ESG investing, said Hartigan. The Finnish firm opted to launch a U.S.-based ETF rather than a European fund or a separate account to maximize liquidity and cost effectiveness, Hartigan added.

As with all ETFs, other investors will be able to buy and sell the new product. ETF analysts said they continue to keep a close eye on how funds that emphasize environmental, social or governance (ESG) factors in building portfolios fare.

"Returns haven't been inspiring for the last year or two," said Todd Sohn, who tracks ETFs at Strategas. Institutional investors face more hurdles, with states such as Indiana, Oklahoma and Texas seeking to ban state pension funds from investing with asset managers that incorporate ESG criteria in their strategies.

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