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A Changing ESG Investing Landscape

In the past two years, there have been significant developments in Environmental, Social and Governance (ESG) index-based investing. S&P Global Market Intelligence thinks that a more modest global economic expectation, a focus on climate changes and the gender pay-gap disparity and a new generation of investors comfortable with alternatively-weighted passive strategies plays a role.

 According to Alka Banerjee, a managing director of S&P Dow Jones Indices (www.indexologyblog.com), in the last 15 months, the index provider launched more than 30 new ESG indices covering a gamut of climate change issues, fossil fuels and broader ESG metrics. She noted demand for such indices has been strong from both institutional and retail investors.

One such S&P Dow Jones index-based product is SPDR S&P 500 Fossil Fuel Free ETF (SPYX), which launched in December 2015 and had $75 million in assets. The ETF has a 0.20% net expense ratio and excludes companies who own any fossil fuel reserves. Relative to its older sister ETF, SPDR S&P 500 (SPY), SPYX’s energy exposure (2% of assets vs. 7%) is more modest..

Calvert US Large Cap Core Responsible Index Fund (CSXAX), which had approximately $700 million in assets across various share classes, was one of the Calvert index-based equity products that has been performing relatively well.

Within Calvert’s governance criteria are board diversity and support of women and minority-owned businesses. Last month, State Street launched an ETF that focused specifically on investments where women play a significant role within the company’s leadership.

our corporate responsibility mission is to strengthen our communities and build more inclusive and sustainable economies.
At S&P Global, which is the parent company of S&P Dow Jones Indices and S&P Global Market Intelligence, our corporate responsibility mission is to strengthen our communities and build more inclusive and sustainable economies, with a particular focus on supporting women’s leadership and entrepreneurship.

SPDR SSGA Gender Diversity Index ETF (SHE) is an investment that fits those criteria as the ETF is constructed with companies that exhibit the best gender diversity within each sector. The criteria include the ratio of female executives and female members of the companies’ board of directors to all executives and members of the board of directors. The ETF has $275 million in assets, despite first trading in March 2016.

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According to a SSGA, the firm was inspired to develop the Index by the California State Teachers’ Retirement System’s (CalSTRS) efforts to move the needle on gender diversity in corporate America, especially for women in leadership positions. CalSTRS has been a significant investor in SHE and provides the new ETF with liquidity. The ETF has a 0.20% expense ratio.

SHE’s top-10 holdings include Home Depot (HD) Berkshire Hathaway (BRK.B) and Oracle (ORCL).

Follow me @ToddSPGlobal to keep up with mutual fund and ETF trends.

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