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Key Subsectors in our Environmental Impact 100

On July 23rd, 2021, the Rize Environmental Impact 100 UCITS ETF debuted on the London Stock Exchange. LIFE seeks to invest in the 100 most innovative and impactful companies that stand to benefit from developing and applying solutions that address the world’s most pressing climatic and environmental challenges. This includes leaders and innovators across clean water, EVs, renewables and hydrogen, energy efficiency, waste and the circular economy and nature-based solutions. LIFE has been designed to address the six environmental objectives set out in the EU Taxonomy for Sustainable Activities (“EU Taxonomy”): (1) Climate Change Mitigation; (2) Climate Change Adaptation; (3) The Sustainable Use and Protection of Water and Marine Resources; (4) The Transition to A Circular Economy; (5) Pollution Prevention and Control; and (6) The Protection and Restoration of Biodiversity and Ecosystems. LIFE seeks to deconstruct these six environmental objectives into a investible, high impact sub-sectors that represent key areas of sustainable innovation in the environmental sector that are expected to grow exponentially over the coming decade. To further explore this methodology, in this piece, we examine the six environmental objectives in detail, before unpacking the ten high impact sub-sectors that we seek to invest in within our Rize Environmental Impact 100 UCITS ETF.

 

Our planet is under threat like never before. Temperatures are rising, rainfall patterns are shifting and sea ice cover is retreating. Oceans are acidifying, soils are degrading and droughts and floods are now commonplace. Exploitation and degradation of Earth’s remaining natural resources, habitats and biodiversity continues. We need to take collective action now. That requires us to put our hands into our pockets and vote with our capital. The Rize Environmental Impact 100 UCITS ETF is designed to give investors exposure to the 100 most impactful companies in the environmental universe while also providing them the comfort that their capital is being geared towards maximising environmental sustainability in each of our relevant sub-sectors.” Rahul Bhushan, Co-Founder of Rize ETF

Environmental Objectives

1. Climate Change Mitigation
Economic activities that contribute substantially to the stabilisation of greenhouse gas emissions by avoiding or reducing them or by enhancing greenhouse gas removals.

2. Climate Change Adaptation
Economic activities that contribute substantially to reducing or preventing the adverse impact of the current or expected future climate, or the risks of such adverse impact.

3. The Sustainable Use and Protection of Water and Marine Resources
Economic activities that contribute substantially to achieving the good status of bodies of water, including surface, groundwater, and marine waters.

4. The Transition to a Circular Economy
Economic activities that increase the durability, reparability, upgradability, and reusability of products and/or which seek to develop ‘product-as-a-service’ business models with circular value-chains.

5. Pollution Prevention and Control
Economic activities that contribute substantially to the prevention or reduction of pollutant emissions into air, water, or land (other than greenhouse gases).

6. The Protection and Restoration of Biodiversity and Ecosystems
Economic activities that lead to nature and biodiversity conservation.

 

Sub-Sector Classification

Climate Change Mitigation
1. Renewable Energy Generation
2. Renewable Energy Equipment
3. Hydrogen and Alternative Fuels
4. Energy Efficiency Solutions
5. Electric Vehicles and Green Transport

Climate Change Adaptation
6. Climate Resilience Solutions

The Sustainable Use and Protection of Water and Marine Resources
7. Clean Water

The Transition to a Circular Economy
8. Circular Economy Solutions

Pollution Prevention and Control
9. Pollution Control

The Protection and Restoration of Biodiversity and Ecosystems
10. Nature-Based Solutions

Key subsectors in environmental impact investing

Renewable Energy Generation – Companies in this Sub-Sector are engaged in the generation and distribution of electricity produced from renewable energy sources, including solar, wind, hydro, geothermal, tidal and other sources deemed “renewable” by the International Renewable Energy Agency. Excluded from this Sub-Sector are companies engaged in nuclear power and the generation of electricity derived from fossil fuels (including coal, oil and natural gas) and palm oil.

Renewable Energy Equipment – Companies in this Sub-Sector design, manufacture, produce and maintain renewable power generation equipment such as solar panels, solar inverters and converters, wind turbines, water turbines and other equipment necessary for the development of renewable energy projects.

Hydrogen and Alternative Fuels – Companies in this Sub-Sector are engaged in the development, processing, production and/or distribution of alternative energy sources such as hydrogen (e.g., fuel cell and distribution solutions) and biofuels (e.g., ethanol and biodiesel). Only companies deemed to be well positioned in the most sustainable alternative fuel production methods are included in the universe (e.g., second-generation biofuels, blue/green hydrogen produced from renewable energy and/or with carbon capture technologies).

Energy Efficiency Solutions – Companies in this Sub-Sector enable more efficient methods of energy usage and management in residential, commercial and/or industrial buildings. These include, but are not limited to, smart grid solutions, smart meters, high efficiency HVAC systems, LED and CFL lighting, advanced insulation solutions and/or other activities highlighted in the European Energy Efficiency Directive (https://ec.europa.eu/energy/topics/energy-efficiency).

Electric Vehicles and Green Transport – Companies in this Sub-Sector design, develop and/or manufacture sustainable transport alternatives. Included in this Sub-Sector are companies operating along the full value-chain of electric vehicles (battery technology providers, manufacturers of power train parts, car companies themselves, etc.) and green public transportation options (public transit systems and train/subway/bus manufacturers and operators offering environmentally-friendly options beyond regular mass transit companies).

Climate Resilience Solutions – Companies in this Sub-Sector provide solutions that aim to make us more resilient to the physical effects of climate change. Areas of focus include solutions such as irrigation technologies that secure and manage water supply for agriculture in regions suffering from increasingly erratic and/or reduced overall rainfall resulting from changing weather systems. This Sub-Sector also includes companies that provide technological know-how or solutions and/or engineering and planning services to build more resilient infrastructures.

Clean Water – Companies in this Sub-Sector design, develop and/or manufacture products and services that enhance clean water quality and availability infrastructure systems, such as treatment and purification systems, water efficiency technologies, and installation, maintenance, and renovation of water distribution networks. Water utilities are included provided that they operate in a marginally high-impact region (e.g., in developing countries where water infrastructure requires substantial investment).

Circular Economy Solutions – Companies in this Sub-Sector support the transition to a circular economy. Included are companies engaged in the development, manufacture, installation and/or operation of equipment and services for the collection, management, triaging, and recycling of waste. Companies engaged in the development of waste-to-energy solutions (e.g., methane capture at landfills) are also included within this Sub-Sector.

Pollution Control – Companies in this Sub-Sector address pollution prevention and control at the primary source of emission. For the most part, these are engineering, and tech firms engaged in the design of processes that minimise pollution impacts from normal, day-to-day business operations.

Nature-Based Solutions – Companies in this Sub-Sector are engaged in the development of nature-based solutions for tackling environmental challenges. Typically, these are companies involved in economic activities such as managed forestry, reforestation and afforestation, natural infrastructure management, wetlands management, and other biodiversity protection activities.

 

Related ETF

LIFERize Environmental Impact 100 UCITS ETF

 

References

Sustainable Market Strategies, “SMS Environmental Impact Opportunities Thematic Classification”, Pages 10, 11 and 12. Available at: https://rizeetf.com/wp-content/uploads/2021/07/SMS-Environmental-Impact-Opportunities-Thematic-Classification.pdf

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