One Climate ETF Holds 10.2% in NVIDIA but Zero Energy Stocks – How?

Most climate-focused ETFs require investors to choose between their values and their returns. iShares Paris-Aligned Climate Optimized MSCI USA ETF (NASDAQ:PABU) takes a different approach by keeping one foot in the growth trade while screening for climate alignment. The question is whether this middle ground delivers on either promise.

What PABU Actually Does

PABU tracks US large and mid-cap stocks that meet Paris Climate Agreement criteria, overweighting companies with lower carbon intensity and higher green revenue potential. The fund’s structure reveals its true nature: technology dominates with NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) commanding 10.2% of assets, making this more of a tech bet with climate screening than a diversified ESG play. The concentration extends beyond NVIDIA, with the top three holdings controlling a quarter of the entire portfolio.

This is not a defensive climate fund. Information Technology makes up 39.9% of assets while Energy sits at zero. The return engine depends on mega-cap tech continuing to deliver growth while simultaneously qualifying as climate-friendly through data center efficiency improvements and renewable energy commitments. That dual mandate creates an unusual risk profile.

Performance Reality Check

The climate screening creates a persistent performance drag that investors need to understand. Since launching in February 2022, PABU has returned roughly 51% compared to the S&P 500’s 79% gain. This 28-percentage-point gap stems directly from the fund’s climate criteria, which exclude high-performing energy stocks and filter out companies that don’t meet Paris Agreement alignment standards. The trade-off is clear: climate alignment comes at a measurable cost to returns.

Recent performance shows the gap persisting, with PABU trailing both SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and Vanguard Total Stock Market ETF (NYSEARCA:VTI) by approximately 5 percentage points over the past year. The underperformance isn’t a fee problem – PABU’s 0.10% expense ratio is competitive. Instead, the drag comes from the fund’s structural choices about which companies qualify as climate-aligned.

The fund’s approach prioritizes stability over tactical positioning. A modest 0.88% dividend yield and low 15% portfolio turnover indicate PABU maintains consistent positions in climate-aligned companies rather than chasing performance. This stability reflects the fund’s core mission: long-term climate alignment, not short-term return maximization.

The Trade You’re Actually Making

PABU works best for investors who want tech-heavy US equity exposure with a climate tilt, not those seeking pure ESG leadership or downside protection. The fund excludes traditional energy entirely but maintains concentrated exposure to semiconductor and AI infrastructure companies. You accept performance drag versus broad market indexes in exchange for alignment with decarbonization goals.

The concentration risk is real. A 25% weighting in three stocks means individual company volatility drives returns more than climate screening. PABU fits portfolios that can tolerate tech sector swings and are willing to sacrifice some return potential for climate considerations, but it should not be mistaken for a defensive or diversified ESG position.