The first sustainability exchange-traded funds are in the works. Pax World Funds plans to launch three ETFs in the next year that track newly licensed sustainability indexes--indexes that weight companies on a broad range of positive criteria including their environmental, social and governance (ESG) records. Joe Keefe, president and ceo, said Pax World chose the ETF route for the new indexes because those types of offerings are selling better than traditional mutual funds right now.
Keefe also cited some inherent advantages of ETFs, such as their tax efficiency. He added that the ETFs will need to be marketed differently from Pax World's open-ended mutual funds though he said it was too early to provide details.
According to Citigroup research there are three socially responsible investing ETFs on the market, but they use negative screens and are not run by SRI firms. The existing SRI ETFs are Barclays Global Investors' iShares KLD Select Social Index Fund, iShares KLD 400 Social Index Fund and PowerShares' Cleantech Portfolio.
A recent study published by the Social Investor Forum predicts that flows into SRI ETFs will outpace mutual fund SRI sales (see story, page 3).
The Pax World ETFs will be based on three indexes from KLD Research and Analytics: KLD Global Sustainability Index, KLD North America Sustainability Index and KLD Europe Asia Pacific Sustainability Index.