As more people take the TIFIN Personality Financial Personality Assessment, it becomes clear that a significant number of investors care about ESG and putting their money where their minds are. We recently sat down with Change Finance, creators of the first ever Certified Carbon Neutral Fund (Change Finance US Large Cap Fossil Fuel Free ETF – CHGX) to learn more about innovation in the purpose-based ETF space.
TIFIN Personality: What is a Certified Carbon Neutral Fund and why did you pursue its creation?
Change Finance: Climate change is an existential threat to life as we know it. Full stop. Despite the looming disruptions to every facet of our social and economic systems, governments worldwide remain
indifferent. As global emissions continue to rise, few countries are on track to meet their
commitment to the Paris Climate Agreement. According to the Intergovernmental Panel on
Climate Change, Earth may very well warm by 2.4 °C by 2050, an increase that scientists say will be catastrophic to every system we depend on for life.
We believe the global economy must decarbonize rapidly to limit warming within society’s ability to adapt. In the absence of significant governmental policy, individuals, non-profits, and corporations are
taking action to address the climate crisis. With this in mind, Change Finance, a signatory of the United Nation’s Net Zero 2030 Pledge, created the first Certified Carbon Neutral Fund that allows investors to simultaneously accomplish two previously contradictory goals: seek wealth creation through capital markets and sequester the greenhouse gases accumulating in our atmosphere and threatening our future prosperity.
TIFIN Personality: Why now?
CF: Over this past summer, 1 in 3 Americans experienced a climate crisis. From hurricanes, to heat domes, to wildfires – we saw these are urgent signs that it is imperative we do better than the Net Zero targets that are 5, 10, 20 years out. That’s why we decided it was time to act, to innovate, and be the change we wanted to see.
TIFIN Personality: So how does it work?
CF: As a financial company, the vast majority of carbon emissions associated with Change Finance reside in our investment portfolios. Every company we invest in has a carbon footprint. Consequently, we own a small portion of each company’s greenhouse gas emissions.
Since we have limited control over the emissions of large multinational companies, we realized we had to sequester emissions for which we are responsible if we are to achieve our goal of carbon neutrality. We can accomplish this through participating in the nascent and growing voluntary carbon market, a mechanism that allows us to remove carbon from the atmosphere by purchasing certified carbon credits. Our commitment is to sequester 100% of the carbon that our investment portfolios are responsible for.
We partnered with Verity Platforms, a sustainable finance firm who also sources data from CDP to help procure an accurate carbon footprint for each company, and then aggregated that across the portfolio and came up with a portfolio-level carbon footprint for CHGX.
TIFIN Personality: Would you elaborate on what certified carbon credits are and how they work?
CF: Not all carbon credits are created equal. We chose to partner with Grassroots Carbon because it is an organization dedicated to removing carbon from the atmosphere and placing it back into the soil through the practice of regenerative grazing.
We chose regenerative grazing because it is not only more productive in terms of the amount of carbon capture, but it also supports rural communities. Grassroots has a specific focus on marginalized groups such as women ranchers, ranchers of color and indigenous peoples. Essentially, the rancher’s incomes increase, the land is replenished, and carbon is sequestered!
TIFIN Personality: So certification… how did that work? Is it something that other financial companies can do too?
CF: This was an interesting journey. We began researching various certification providers, but no one had a framework in place that would be applicable for an investment portfolio. So, instead of trying to fit a square peg into a round hole, we contacted EthosESG, an ESG data provider, and asked if they would be interested in developing n carbon neutrality certification specifically geared toward investment vehicles. We shared our carbon foot printing process, provided details about carbon capture programs, and helped develop the first Carbon Neutral Certification for investment products. EthosESG now offers this certification to all the asset managers.
We forged the carbon neutrality path for CHGX and now our clients have a tangible way to connect to the impact of their portfolio. Our hope is to inspire other asset managers to follow suit. The climate crisis requires all hands-on deck and we’re proud to have blazed the initial trail towards a net-zero capital markets.