5 top carbon ETFs to add to your portfolio in 2025 for clean-energy diversity

January 13, 2025 at 11:04 AM EST

5 of the top carbon ETFs to add to your 2025 sustainable portfolio

Carbon credits can be a source of sustainable investments for your portfolio, but the carbon-credit market can be difficult to navigate, especially in the U.S. where there is no federal carbon-trading platform and a piecemeal state-by-state market.

According to CarbonCredits.com, a carbon market allows investors and corporations to trade both carbon credits and carbon offsets simultaneously. This mitigates the environmental crisis, while also creating new market opportunities.

Exchange-traded funds, however, provide a much easier entry for investors into the carbon markets. A recent post on Carbon Credits.com, which reports on carbon news, carbon pricing and carbon investment opportunities as well as other topics, highlighted five of the top carbon ETFs for 2025. Here’s a look at the site’s picks and its analysis of the ETFs:

1. iShares Global Clean Energy ETF

The iShares Global Clean Energy ETF ICLN is a part of BlackRock and a top-performing ETF. It focuses on renewable energy companies like solar, wind and other sustainable technologies. Essentially, this fund tracks an index of stocks in the global clean energy sector.

One important attribute of this ETF is its strict sustainability rules. It excludes companies involved in weapons, tobacco, coal, oil sands, and Arctic drilling. These exclusions ensure the fund supports ethical and sustainable investing.

Among its top holdings are First Solar Inc., a major solar panel manufacturer; Iberdrola SA, Enphase Energy Inc., Vestas Wind Systems and Ørsted. These companies contribute significantly to ICLN’s diversified and growth-oriented portfolio.

2. Invesco Solar ETF

The Invesco Solar ETF TAN focuses on solar energy companies, such as manufacturers, installers and technology providers. TAN is based on the MAC Global Solar Energy Index. It invests 90% of its assets in securities, American depositary receipts (ADRs), and global depositary receipts (GDRs) listed in the index.

The index includes solar energy companies and adjusts returns for taxes on nonresident investors. Both the fund and index are rebalanced quarterly to stay aligned with market changes.

Its top holdings include Enphase Energy, First Solar, Sunrun, Nextracker, Class A, GCL Technology Holdings Ltd. and Encavis AG.

3. First Trust Global Wind Energy ETF

The First Trust Global Wind Energy ETF FAN seeks out companies that are managing wind farms, producing wind power or making wind energy equipment. However, companies must have a market cap of at least $100 million, a daily trading volume of $500,000, and a free float of 25% to join the index.

FAN benefits from the global growth of wind power and strong government support for renewables. Its focused strategy and diverse portfolio make it attractive for wind energy investors. However, like any investment, returns are not guaranteed.

FAN has a global portfolio of 52 wind energy companies worldwide. It includes pure play firms with 50% or more revenue from wind energy and diversified firms partially in the sector. Top holdings include Orsted, Vestas, EDP Renováveis, Northland Power, Siemens Energy and GE Vernova.

4. SPDR S&P Kensho Clean Power ETF

The SPDR S&P Kensho Clean Power ETF CNRG focuses on innovation and the clean energy sector. CNRG tracks the S&P Kensho Clean Power Index, which uses AI to find companies leading in clean energy.

The index includes firms in solar, wind, geothermal and hydroelectric power. It also covers energy storage and other emerging technologies. This way it offers a diverse portfolio of companies advancing low-emission power solutions.

CNRG’s portfolio includes innovative companies like Eos Energy Enterprises, Shoals Technologies Group, Plug Power and Array Technologies. It also features Constellation Energy, Nextracker, GE Vernova, and Bloom Energy. These holdings highlight the fund’s focus on emerging technologies and their potential in the growing renewable energy market.

5. Global X Lithium & Battery Tech ETF

The Global X Lithium & Battery Tech ETF LIT gives investors access to the booming electrification, lithium, and battery technology sector. Additionally, LIT tracks the Solactive Global Lithium Index, which follows top companies in lithium exploration, mining, and battery production.

Although no financial instruments track lithium prices directly, the ETF offers indirect exposure by investing in key firms in the lithium supply chain.

LIT’s portfolio includes top companies in lithium and battery technology like Albemarle Corp, Tesla Inc, and Ganfeng Lithium. Other key holdings are Panasonic Holdings, CATL and Tianqi Lithium.