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Unveiling the Rise of CTB and PAB ETFs: A Decade of Sustainability Growth

Published 2024-02-29, 07:10 a/m
Updated 2023-02-27, 04:15 a/m

In the evolving world of sustainable investing, two standout stars in the ETF universe are Climate Transition Benchmarks (CTB) and Paris-Aligned Benchmarks (PAB). These investment tools have not only captured the imagination of environmentally conscious investors but have also shown remarkable growth and resilience over the last four years.

Understanding CTB and PAB

Climate Transition Benchmarks (CTB) and Paris-aligned Benchmarks (PAB) represent a new era in Environmental, Social, and Governance (ESG) investing. At their core, both are designed to guide investment towards companies that align with the transition to a low-carbon economy. The CTB focuses on a broader set of criteria for companies making strides towards reducing carbon emissions. In contrast, the PAB aligns more closely with the ambitious targets of the Paris Agreement, aiming to limit global warming to well below 2, preferably to 1.5 degrees Celsius above pre-industrial levels.

Composition and Growth

The composition of those ETFs is meticulously designed to include companies that demonstrate a commitment to reducing their carbon footprint and enhancing their sustainability practices. This is aligned with the growing investor demand for responsible and sustainable investment options, fueled by the rising awareness of climate change's impacts. The market data speaks volumes about the growth and investor interest in CTB and PAB ETFs. From a modest beginning with only 9 ETFs in 2014, this space has expanded dramatically to house 203 ETFs by 2024 in Europe. This expansion is a testament to the mounting importance of sustainable investing. The assets under management (AUM) invested in the Net Zero 2050 theme, which encompasses the PAB and CTB ETFs, witnessed an astonishing rise of 2,456% over the last ten years, skyrocketing from €2.3 billion in 2014 to a whopping €58.5 billion in 2024. Even though the weight of this theme is still low compared to the total assets managed by all ETFs (representing 3.4%), its growth underscores the market's appetite for climate ETFs and showcases the shift in investment strategies towards favouring green and sustainable options.

Why Investors Are Leaning Towards CTB and PAB

The shift towards CTB and PAB ETFs can be attributed to several factors. On the one hand, Regulatory Support Initiatives (RSI) and Environmental, Social, and Governance (ESG) principles have increasingly pressured companies to pivot towards more sustainable operations. On the other hand, European investors are keen on contributing to the battle against climate change while seeking profitable ventures. As a result, they find CTB and PAB ETFs appealing as they promise both ethical engagement and financial returns. In 2023, they gained 13.07% on average and were up 4.11% year-to-date (as of 23 February 2024). 

The sustained interest of European investors in the net zero theme is reflected in the continued positive flows into CTB and PAB ETFs. These ETFs can offer a promising avenue for investors wishing to act against global warming.

 

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