DEEPER CLIMATE & ESG ANALYSIS

All Etho indexes and associated investment strategies go through our Smart Sustainability Process™, which uses a five-step methodology to generate broadly diversified portfolios of the most climate-efficient and sustainable companies. Our investment strategies combine climate positive clean technology companies with a broadly diversified mix of the most climate-efficient companies in a wide range of industries, resulting in substantial climate benefits relative to conventional benchmark indices. Etho also always looks beyond climate metrics to avoid industries and companies that have other substantial environmental, social, or governance (ESG) risk factors. Our flagship Etho Climate Leadership Index® is tracked by the Etho Climate Leadership US ETF, which trades with the "ETHO" ticker symbol on the New York Stock Exchange, and our Etho Global Climate Positive Index™ serves as the basis for the Climate Action SMA portfolio.

Full SCOPE 1-3 DECARBONIZATION

Etho’s methodology starts with comprehensive Scope 1-3 climate accounting for over 10,000 of the world’s most commonly traded public equities. Importantly, Etho climate analysis includes Scope 3 calculations for both “upstream” supply chain emissions and “downstream” product use and disposal emissions, which collectively account for over 85% of GHG pollution for most companies and is missing from most other climate investing strategies. Etho’s much more complete climate accounting results in more comprehensive and accurate identification of climate leader companies in every industry, as well as the selection of net climate positive companies whose supply chain and operations GHGs are exceeded by the climate benefits from their clean technology products and services (like renewable energy, electric vehicles, and sustainable food products).

All Etho “Climate Leadership” indexes and strategies only include companies that are at least 50% more decarbonized than their industry peers (measured through total Scope 1-3 GHGs per $1 invested “climate efficiency”), resulting in indexes and associated strategies that are typically at least 80% decarbonized (lower GHGs/$) relative to conventional benchmarks. Etho “Climate Positive” indexes and associated strategies push portfolio-wide decarbonization even further by combining a diversified mix of decarbonized climate leaders with a higher percentage of net climate positive companies, resulting in an overall portfolios that go measurably beyond Net Zero to Climate Positive, where every additional $1 invested is linked to more net climate benefits. Etho’s comprehensive climate calculations and decarbonization criteria result in indexes and strategies that meet or exceed Paris Agreement, Science Based Targets (SBTi), and Net Zero portfolio goals.

100% ESG Risk Screening

In additional to our rigorous climate leadership criteria, all equities in Etho indexes and strategies must pass through three layers of ESG screening. During the Unsustainable Industry Screen phase, Etho’s team removes companies with potentially socially irresponsible business models connected with fossil fuels, tobacco, alcohol, weapons, gambling, or prisons. Etho’s team then conducts even deeper ESG analysis on our remaining finalist companies to remove companies identified with specific “bad actor” flags related to a wide range of potential ESG issues, including all forms of DEI discrimination, worker and consumer safety, fair labor practices, opioid addiction, animal cruelty, toxic waste, plastics pollution, deforestation, biodiversity loss, legal violations, and fraud. This phase also includes screening for material climate resilience risks related to each remaining company’s infrastructure and business operations, as well as screening out companies that lobby to block climate-improving policies. Etho’s final phase of ESG screening incorporates data and feedback from external experts in a wide rage of ESG issue areas, identifying additional potential bad actor flags which Etho’s team further reviews.

Balanced Portfolio Construction

Etho’s peer leadership-based index construction methodology results in balanced strategies that are broadly diversified throughout their target economies, while also being deeply decarbonized and 100% ESG-aligned. While all Etho strategies contain a higher share of climate solution companies than conventional index benchmarks, all Etho strategies are also broadly diversified and connected to economy-wide decarbonization in every sector. Etho’s core indexes are designed to perform with relatively low volatility that’s comparable to conventional index benchmarks like S&P 500 and MSCI ACWI, and Etho core index strategies typically have much lower volatility than active climate and ESG funds. Etho is also working with partners to incorporate Etho indexes, data, and analysis into actively managed climate strategies.

Etho Climate Leadership US Index:

The following is an illustration of how Etho’s Smart Sustainability Process™ is incorporated into our Etho Climate Leadership US Index. For more information on Etho’s process and interactive data illustrating how our deeper climate and ESG analysis can lead to better financial performance, please visit our Go-In-Depth and Guide to Climate Positive Investing pages.