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Can ESG ETFs Help Portfolios During Climate Disasters?

Based on simulations of the performance of the S&P 500 during those three periods, YCharts found that they had no significant impact. “There may be some sector-specific impacts on real estate or utilities, but we can’t say that these events had a major impact on the overall stock market,” Kitco says. “The S&P 500 had not turned out of its course at that time.”

YCharts also looked at how those events might have affected a 60-40 balanced portfolio of stocks and bonds, and whether adding a few ESG-related ETFs would have helped the portfolio. It looked at four different ETFs: the iShares MSCI USA ESG Select ETF (SUSA), the iShares Global Clean Energy ETF (ICLN), the VanEck Low Carbon Energy ETF (SMOG), and the KraneShares Global Carbon Strategy ETF (KRBN).

“KRBN is probably the most interesting,” Kitko says. “The thesis behind the strategy is that as regulation of climate risks continues to increase, there will be an increasing demand for companies to purchase carbon credits to offset carbon emissions. KRBN therefore aims to benefit from the rising cost of carbon credits. Is.”

Over two of the three time periods, YCharts found that adding allocation to climate-related ETFs, specifically ICLN and KRBN, would enhance the performance of balanced portfolios.

Backtest of portfolio performance during the wildfires of 2020. (Source: YCharts)

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