EXCLUSIVE (Part 1): Fool Q&A With Evolve ETF President & CEO

In a recent exclusive interview with Evolve ETF’s president and CEO, we discuss a new line of recently launched clean beta ETFs.

edit Person using calculator next to charts and graphs

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more
This week, I got a chance to hear from Raj Lala, president and CEO of Evolve ETFs. Mr. Lala’s insights into the fast-growing disruption ETFs are providing has been intriguing. In particular, our discussion centered on the newest carbon neutral ETFs for ESG-oriented investors. These funds have generated a lot of attention, as newly listed ETFs targeted at attracting a growing investor set.
These two funds are the Evolve S&P/TSX 60 CleanBeta™ Fund (TSX:SIXT) and the Evolve S&P 500 CleanBeta™ Fund (TSX:FIVE).
Let’s dive into these funds a bit more and see why investors are getting so excited about these carbon-neutral ETFs today.

Fool: How did you come up with this carbon-neutral ETF idea?

Evolve: Carbon dioxide is the primary contributor (80%) of our world’s greenhouse gases. Investors are now demanding that countries and companies work to reduce these emissions; however, this cannot take place overnight. About a year ago, a large firm approached us to create a carbon-offset-credit ETF; however, we felt it might be too esoteric.

A few months later, a light bulb went on — and we said, “what if we could use carbon credits to offset the carbon footprint of traditional indices?” Carbon credits represent a removal or avoidance of carbon emissions in the environment. So, our solution would be to provide investors with an index that they would typically own but delivers a carbon neutral version of it — or CleanBeta™, which we’ve trademarked.

We approached S&P with the idea, and they granted us the first licence on the S&P/TSX 60 in over 11 years and also granted us the licence for the S&P 500.

Fool: How does the fund work? Walk us through the simple mechanics of the process.

Evolve: We’re pleased to have launched the world’s first carbon-neutral ETFs based on the performance of the following traditional indices: S&P/TSX 60 and S&P 500.  The Evolve S&P/TSX 60 CleanBeta™ Fund (SIXT) and the Evolve S&P 500 CleanBeta™ Fund (FIVE) have been developed to satisfy a number of investment and operational challenges for advisors and their clients. These funds provide investors with a way to decarbonize the core of their portfolio.

S&P owns a company called Trucost, which performs carbon-emission analysis and calculations on about 15,000 companies on annual basis. Trucost is considered one of the top carbon calculators in the world. Trucost looks at direct and first tier indirect emissions — very similar to Scope 1 and 2 emissions and relies on data from the Carbon Disclosure Project or CDP. Trucost provides a calculation for metric tons of emissions per $1 million invested. For example, as at the end of April, the S&P/TSX 60 currently has about 83 metric tonnes of emissions per $1 million invested and S&P 500 is about 52 metric tonnes/million.

Based on an average cost of $20/per offset credit, that equates to 17bps of costs to offset the S&P/TSX 60 Index (SIXT) and 10bps to offset the S&P 500 (FIVE). The funds will purchase California Compliance Offsets (CCOs), which are among the highest-quality carbon credits available. The credits will be purchased and retired immediately and will not be an asset of the fund.

These credits work out to a current cost of 3.4 cents per $20 share on the S&P/TSX 60 and 2.2 cents on the S&P 500, as at April 30, 2021. So, investors will receive the exact performance of the Index less fees. Ultimately, investors receive a carbon neutral version of the S&P 500 or S&P/TSX 60. There is no other screening, nor are there any changes to the indices.

Fool: What is the target audience for these products?

CleanBeta takes a unique approach and simple solution to decarbonize the core of investor portfolios. There has been significant interest from institutional investors, including corporate pensions, university endowments, and family offices.

In Canada, over the next five years, approximately $700 billion of wealth is expected to transfer from one generation to the next.  As a result, many advisors are beginning to incorporate ESG investing in their practice, as younger investors are focused on ESG principles and looking to make a climate impact with their investments.

These funds are ideal for investors looking for a cost-effective carbon-neutral solution, care about social issues, ESG, and climate change.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

More on Energy Stocks

energy oil gas
Energy Stocks

2 Energy Companies to Buy When the Sector Hits Rock Bottom

Multiple factors, including the TSX decline, are contributing to the current slump in the energy sector.

Read more »

think thought consider
Energy Stocks

Energy Stocks Dip: To Buy or Not to Buy?

Most energy stocks are risky investments, because of their unpredictable profitability. Investors should tread carefully.

Read more »

Gas pipelines
Energy Stocks

2 Energy Stocks I’d Buy for Passive Income and Turnaround Upside

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) and another top TSX energy stock could bounce back, as oil prices find their footing.

Read more »

oil tank at night
Energy Stocks

Oil Finally Crashed: Is the Party Over?

Recently, oil stocks like Cenovus Energy (TSX:CVE) crashed. Is the energy party over?

Read more »

data analyze research
Energy Stocks

TSX Stock Picks With Huge Potential

If you want a TSX stock that's bound for even more strong growth, these three are top picks by analysts.

Read more »

oil and natural gas
Energy Stocks

Can Cenovus Stock Outperform in H2 2022?

Is now the time for investors in Cenovus (TSX:CVE)(NYSE:CVE) stock to buy more, or wait out this volatility right now?

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Energy Stocks

NexGen Energy: The Top Uranium Stock Set to Double in 2022

NexGen (TSX:NXE)(NYSE:NXE) stock is one of the top uranium stocks to consider right now with the potential to double in…

Read more »

energy industry
Energy Stocks

Why Suncor Energy (TSX:SU) Stock Has Declined 20% in June

Will Suncor Energy stock climb back up to $50 again?

Read more »