ESG: Products need to walk the walk on sustainability metrics
Establishing clear criteria, and sticking to them, are key to successful ESG investing.
In late August, news emerged that a $578 million socially responsible exchange-traded fund (ETF) managed by Vanguard Group contained shares in a range of non-socially responsible firms – including a gun manufacturer and a private prison operator.
The shares were added in error, the result of a mistake in the underlying index provided by FTSE Russell, which has subsequently committed to strengthening its processes.
This episode highlights just how important thorough due diligence is for investors that are looking to increase their exposure to environmental, social and corporate governance (ESG) assets even through passive tracker funds. For ETFs there are a range of options when it comes to deciding what the underlying will be.
“Deciding on ESG criteria is always a complex discussion,” says Oliver Kilian, a director within UniCredit’s ETF Advisory & Trading unit.
UniCredit recently announced the listing of two ETFs based on the eurozone’s first set of indices combining a factor strategy with ESG screens. The ETFs will track the Euro iStoxx ESG-X & ex nuclear power multi factor index and Euro Stoxx ESG-X & ex nuclear power minimum variance unconstrained index.