Clean Energy and Climate
Published by Radif Partners · Updated
Solar, wind, hydrogen, the energy transition and net-zero economy
This page compares 4 funds in the Clean Energy and Climate category, with ongoing charges from 0.20% to 0.45% and a median of 0.20%. The gap between the cheapest and the dearest is worth roughly €250 over ten years on €10,000 invested: for a comparable index, that is the most reliable difference between two funds, because it rests on no assumption about markets. 3 of the 4 funds are accumulating and 4 replicate their index by holding its securities, the others using a swap. The largest fund in the list is WPAB, which matters less for returns than for the risk of closure: a fund that stays small usually ends up merged. Past performance is not used to rank this list: over the horizons published it says more about the index being tracked than about how the fund is run.
4
0.26%
+6.2%
0.20%
+13.2%
iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc)
iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc)
iShares MSCI World Low Carbon Target UCITS ETF USD (Dist)
Rize Sustainable Future of Food UCITS ETF
What European regulation requires of a climate index
Since 2020, European law defines two categories of climate index, and it is the only binding definition on the market. A Climate Transition Benchmark must cut its carbon intensity by thirty per cent against its starting universe, a Paris-Aligned Benchmark by fifty, and both must then lower that intensity by seven per cent a year, in line with decarbonisation scenarios. The Paris-Aligned version additionally excludes coal, oil and gas producers above precise thresholds. A fund announcing neither applies free criteria that it defines itself.
That constraint has a visible consequence in portfolios: the seven per cent annual reduction forces the index to drift further from its starting universe year after year, which widens the performance gap, in either direction. The second thing to understand is the measure used. Carbon intensity generally covers direct emissions and those from purchased energy, more rarely those of the value chain, which nevertheless account for most of the emissions of an oil company or a carmaker. The index prospectus states which of the three scopes it uses.
What the funds in this category show
Where the money actually sits
The category holds 4 funds and 3.8B in combined assets, and those assets are not spread evenly. iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc) (WPAB), run by iShares, holds 1.8B on its own, and the three largest, iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc) (WPAB), iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc) (SAWD) and iShares MSCI World Low Carbon Target UCITS ETF USD (Dist) (LOWC), account for 98.5 % of the total. At the other end, Rize Sustainable Future of Food UCITS ETF (FOOD) manages only 57M. Size is no guarantee of quality, but it decides two very concrete things: the spread between buying and selling price you pay on every order, and the odds that the fund still exists in ten years.
The fee gap, in money
Ongoing charges run from 0.20 % for iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc) (WPAB) to 0.45 % for Rize Sustainable Future of Food UCITS ETF (FOOD), a gap of 0.25 points, against a category average of 0.26 %. On £10,000 held for ten years that gap is roughly 250 in extra charges, before counting the return that money would itself have earned. It is the one variable in the comparison known in advance: past performance does not repeat, fees repeat every year.
Two funds in one category do not hold the same basket
The 4 funds listed track 4 different indices, among them MSCI World Climate Paris Aligned Benchmark, MSCI World Climate Paris Aligned Benchmark Select, MSCI World Low Carbon Target and Foxberry Tematica Research Sustainable Future of Food. The largest tracks MSCI World Climate Paris Aligned Benchmark. That spread is why two funds filed under the same theme can differ by several points over a year: they hold different securities, weight them differently and rebalance on different dates. Each fund page names its index, and that is where a serious comparison starts.
Replication and domicile
All 4 funds in the category replicate their index physically: they hold the securities. What remains to check is whether the fund lends those securities, which the key information document states, and how much: lending income lowers the real cost, counterparty risk adds to market risk.
4 of the 4 funds are domiciled in IE, the rest in IE. Domicile sets the withholding tax the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return, and it also sets your own tax treatment depending on where you live.
Accumulate or take the income
3 funds accumulate dividends, 1 pay them out. The largest accumulating share class is iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc) (WPAB), the largest distributing one iShares MSCI World Low Carbon Target UCITS ETF USD (Dist) (LOWC). The choice is not about yield, both versions of the same index return the same before tax, but about tax and discipline: the accumulating class reinvests with no cost and no decision, the distributing class pays income that is taxable in the year it arrives.
Age and critical size
The oldest fund in the category, iShares MSCI World Low Carbon Target UCITS ETF USD (Dist) (LOWC), launched on 2014-09-16, giving 12 years of history, and the newest, iShares MSCI World Paris-Aligned Climate UCITS ETF USD (Acc) (WPAB), on 2021-04-22. A long record shows how the fund behaved in a fall, which no one-year number can. A fund launched two years ago has lived through a single market regime.
1 of the 4 funds manage under 100 million, among them Rize Sustainable Future of Food UCITS ETF (FOOD). Below that level a fund rarely pays for its issuer, and a closure forces a sale on the issuer's timetable rather than yours, with capital gains tax along the way.
Frequently asked questions
What are clean energy ETFs?
Clean energy ETFs invest in companies involved in solar, wind, hydrogen, and other renewable energy sources. They provide exposure to the energy transition megatrend. Check the figure in the key information document of the exact share class your broker offers, since two classes of the same fund can differ on charges and on distribution policy.
Have clean energy ETFs performed well?
Clean energy ETFs surged in 2020-2021 but corrected sharply in 2022-2023 due to rising interest rates and supply chain issues. Long-term fundamentals remain strong as governments invest in decarbonization. What matters more than the ranking is whether the underlying index suits your horizon and your tolerance for a fall of thirty per cent, which no score can decide for you.
What is the risk of clean energy ETFs?
Clean energy ETFs are highly volatile (30%+ annualized) and concentrated in growth companies sensitive to interest rates, subsidies, and regulatory changes. They should be a small portfolio allocation. Past performance over these horizons says more about the index than about the fund, which is why the comparison here weighs cost, size and tracking quality instead.
Which clean energy index is the best?
Popular indices include S&P Global Clean Energy, MSCI Global Climate Change, and Solactive Clean Energy. The S&P index is more concentrated while MSCI offers broader climate exposure. Over a ten-year horizon the ongoing charge weighs more than any difference in past performance: 0.20% against 0.50% on €10,000 is about €300, compounded.