In late 2021, we proudly launched the world’s first certified carbon-neutral ETF. We committed to sequestering 100% of our portfolio’s Scope 1 & 2 carbon emissions, a promise we continue to keep. To achieve this goal, we purchase carbon credits through Grassroots Carbon, an organization that focuses on sequestration projects (such as grazing) that help both the climate as well as marginalized populations.
Thanks to Change Finance’s investors, we have been able to play our part in fighting climate change. The numbers speak for themselves: As of August 18, 2022, we have sequestered 1,021 tonnes of carbon year-to-date, and 1,256 tonnes since the ETF’s inception. For every $100,000 invested in our fund, we have been able to sequester 1.83 tonnes of carbon.
In a perfect world, none of our portfolio companies would be responsible for carbon emissions. And while we steadfastly refuse to invest in the fossil fuel industry, the reality is that virtually every publicly traded company has a carbon footprint of some degree. Thus, in addition to purchasing carbon offsets, we also make it a point to convince the companies we own shares of to move towards carbon-neutrality. Indeed, this isn’t just the right thing to do, but it also makes sense financially: As a carbon-neutral ETF, our investors are effectively absorbing the carbon footprint of our portfolio companies. These companies’ plans for reducing their carbon emissions are therefore very material for anyone owning units of our ETF.
We’re pleased to report that the biggest emitters in our portfolio are working hard at decreasing their carbon footprint. Take Analog Devices, for starters. It has pledged carbon neutrality by 2030. Analog Devices ADI (1% of CHGX as of 9/30/2022) has also committed to reducing its absolute Scope 1 and 2 greenhouse gas emissions by 50% from 2019 to 2030. Finally, the company has promised that 100% of its manufacturing capacity will be powered by renewable energy sources by 2025. The good news is that we are seeing tangible evidence of these commitments turning into reality. From 2020 to 2021, Analog Devices reduced its absolute Scope 1 and 2 greenhouse gas emissions by an impressive 18%.
The trend towards carbon neutrality is no fad. It reflects the urgency of the climate crisis, and the pressing need for society to rapidly decarbonize. And while it’s far too early to celebrate, we believe the progress we are seeing among our portfolio companies is evidence that when it comes to climate change, large corporations are feeling the heat. That’s good news for the planet, and good news for investors, too.
Investors should carefully consider the investment objectives, risks, charges and expenses of AXS Change Finance ESG ETF. This and other important information about the Fund is contained in the Prospectus, which can be obtained by visiting www.axsinvestments.com. The Prospectus should be read carefully before investing.
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Carbon Neutral Certification: Ethos performs an independent analysis of a fund’s carbon footprint and carbon credits (offsets) to verify whether the fund is carbon neutral during a specified period. The carbon footprint consists of verified Scope 1 and Scope 2 emissions of every holding of the fund. Ethos defines the carbon footprint of a fund as the total tons of Scope 1 and Scope 2 CO2 emissions of its holdings multiplied by the fund’s percentage ownership of those holdings. Percentage ownership is based on the market value of the fund’s shares divided by the total market value of the holdings.
While Ethos researches and models Scope 3 emissions for every fund holding, the company does not consider Scope 3 for fund-level certification. This is due to limitations with Scope 3 data, including: lack of standardized reporting methodology by companies: low coverage of companies reporting Scope 3 emissions; and, likely overlap of Scope 3 emissions across company value chains.
As part of the Carbon Neutral Certification, Ethos requires funds to submit proof of purchase of carbon credits from a list of approved providers of carbon credits. When information is not available the following modeling formula used is: Expected emissions = peer-average carbon intensity (CO2 per $M revenue) * $M revenue.
EthosESG audits this estimation and will address discrepancies should they arise. Emissions data is limited by the voluntary disclosure by individual companies and is not independently audited. Change Finance and EthosESG make every effort to ensure data is accurate but cannot guarantee absolute carbon neutrality.
Carbon Sequestration: Change Finance utilizes Grassroots Carbon to purchase Carbon Sequestration Credits for its Carbon Neutral Certification. Carbon sequestration numbers are updated quarterly and reflect carbon offset credits purchased year to date. Verity analyzes the funds carbon footprint quarterly and that analysis is used to purchase credits. Grassroots Carbon certifies and audits carbon capture by taking measurements performed by an unaffiliated third party based on actual 3 feet deep measurements conducted after rigorous stratification in accordance with Verra VMD0021. More information available from buildgrassroots.com
Environmental, Social and Governance (ESG): Environmental criteria considers how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Fossil Fuels Exposure: Fossil Fuel Exposure is calculated at least quarterly by Fossil Free Funds and measures the percentage of a fund’s net assets invested in companies which own, extract, process, or burn fossil fuels for electricity generation as determined by inclusion in the Carbon Underground 200; the Macroclimate 30; Morningstar industry classifications Thermal Coal, Coking Coal, Oil and Gas Drilling, Oil and Gas Extraction, Oil and Gas Production, Oil and Gas Equipment and Services, Oil and Gas Integrated, Oil and Gas Midstream, Oil and Gas Refining and Marketing; the Global Coal Exit List marked as Mining or Services for the Coal Industry Sector or Power for the Coal Industry Sector; or the Global Oil/Gas Exit List upstream and midstream companies. More information available from www.fossilfreefunds.org
Carbon Footprint: The Carbon Footprint of a fund measures the Scope 1 & 2 emissions of a fund in tonnes per $1 million invested as calculated by Fossil Free Funds. The Carbon Footprint is calculated utilizing emissions data for each company provided by yourSRI. The Carbon Footprint as calculated by Fossil Free Funds is equal to the sum of each portfolio constituent’s Scope 1 and scope 2 carbon emissions multiplied by percentage of ownership (position size/market capitalization) divided by the fund’s AUM in millions. Fossil Free Funds does not calculate carbon footprint for indices. Therefore SPDR S&P 500 ETF Trust (SPY), a large fund that closely tracks CHGX's benchmark, the S&P 500, is used as a benchmark for the carbon footprint. Scope 3 information is utilized when available. Fossil Free Funds uses AI to estimate any non-disclosed emissions comparative to its peers in revenue and industry for Scope 1 and 2. Information is disclosed by companies and is not independently audited and its accuracy cannot be guaranteed.
Weapon Exposure: Weapon Exposure is calculated at least quarterly by Weapon Free Funds and Gun Free Funds and measures the percentage of a fund’s net assets invested in companies that manufacture or sell civilian firearms, manufacture or service nuclear weapons, manufacture cluster munitions or land mines, or are among the 100 largest military contractors using data from the Stockholm International Peace Research Institute Arms Industry Database; PAX; and Gun Free Funds’s lists of the largest firearms manufacturers and retailers. More information available from weaponfreefunds.org and gunfreefunds.org.