Climate ETF on brink of failure months after UN summit launch
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A UN-backed green investment fund is on the brink of failure three months after its launch during the Glasgow climate summit because institutions including big banks never delivered expected seed funding.
The MSCI Global Climate Select exchange traded fund was unveiled in early November. Trading under the ticker NTZO, it excludes fossil fuel companies and boosts holdings of companies with lower carbon emissions.
The fund has amassed less than $2mn and is likely to be wound down as soon as the end of March without further investment, said Ethan Powell, founder of Dallas-based Impact Shares, the fund manager. He said Impact Shares has been spending about $25,000 a month to manage the ETF.
The case illustrates how corporate organising to combat climate change can fall short when capital is needed. The ETF was created by Impact Shares and Global Investors for Sustainable Development (GISD), a group of 30 global companies that launched in October 2019 to help fund the UN’s sustainable development goals.
Bank of America, Citigroup and Santander, all GISD members, pledged to provide seed money to NTZO but have refused until other investors step up, said Jim Healy and Sudip Thakor, former Credit Suisse bankers who are involved with the fund.
“It is a classic case of everyone just going through the motions,” Thakor said. He said he invested $500,000 in the ETF, while Healy and his wife invested $1mn.
Bank of America and Citigroup pledged up to $50mn and $12.5mn for the ETF, respectively, but with the proviso that their investments could not account for more than 25 per cent of the fund, Healy and Thakor said. They said Santander, the Spanish bank, pledged $50mn but would not have more than 5 per cent.
Because of the ETF’s small size, the banks could not provide their maximum dollar commitments without exceeding the pledged percentages.
Bank of America said it “stood by ready to provide seed capital on the basis that the ETF would be able to gather sufficient volume from long-term institutional investors”.
Citigroup said it is willing “to provide seed capital for the NTZO ETF contingent on preset criteria and regulatory requirements”, adding that “any claim to the contrary is false”.
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Santander said it “remains committed” to investing in the ETF “once the fund has been seeded and the information required to complete due diligence has been provided”.
The UN said it “continues to support innovative finance solutions” and will “support those efforts when called upon”.
Impact Shares and the UN announced the new ETF in November as global leaders met in Scotland for the COP26 climate summit. Fani Titi, chief executive of South African banking group Investec and a GISD member, was quoted in a press release saying that the climate ETF “created a real opportunity for investors to finance greater good”.
Healy and Thakor said they expect to get their money back if the ETF is forced to shut down. “There needs to be some accountability,” Healy said. “We care about global warming and we just resent the facade that the GISD represents to us.”
Letter in response to this article:
No place for emotion in climate ETF investing / From Theo Vermaelen, Professor of Finance, INSEAD Fontainebleau, France