June 27 (Reuters) - As some U.S. investors pull assets

out of sustainable funds, Atlanta-based Invesco ( IVZ ) has

launched a new climate-focused exchange-traded fund (ETF) with

seed funding of $1.6 billion in assets from Finland's

Varma Mutual Pension Insurance Company.

It hopes the Invesco MSCI Global Climate 500 ETF

will serve as a core holding that includes environmental

considerations while also delivering competitive returns, said

Brian Hartigan, interim global head of ETFs and indexed

securities at Invesco ( IVZ ).

The index that underlies the new ETF was custom-designed by

MSCI for Varma. Designed to track the MSCI ACWI Select Climate

500 Index, it includes companies in the market-capitalization

weighted MSCI ACWI ex Select Countries Index, screened to

identify those with greenhouse gas emissions reduction targets

that fit Varma's goal of backing a shift away from fossil fuels.

"This offers access to a global portfolio of sustainable

businesses without being too customized or restrictive on the

minutiae" of ESG investing, said Hartigan.

The Finnish firm opted to launch a U.S.-based ETF rather

than a European fund or a separate account to maximize liquidity

and cost effectiveness, Hartigan added.

As with all ETFs, other investors will be able to buy and

sell the new product.

ETF analysts said they continue to keep a close eye on how

funds that emphasize environmental, social or governance (ESG)

factors in building portfolios fare.

"Returns haven't been inspiring for the last year or two,"

said Todd Sohn, who tracks ETFs at Strategas.

Institutional investors face more hurdles, with states such

as Indiana, Oklahoma and Texas seeking to ban state pension

funds from investing with asset managers that incorporate ESG

criteria in their strategies.