Deka Investment, a German provider of exchange-traded funds, has launched the Deka Euro Oekom Sustainability UCITS ETF, a Deutsche Börse-listed ETF providing exposure to a portfolio of large-cap Eurozone equities that meet high sustainability standards.
Deka Investments has launched an ETF for investors looking for exposure to the most sustainable large-cap companies in the eurozone.
The ETF is the latest in a growing band of Socially Responsibility Investing (SRI) and Environmental, Social and Governance (ESG) conscious investment products.
Initiatives like the United Nations-supported Principles for Responsible Investment have long promoted the benefits of investing in a sustainable and ethical fashion. Through this approach the investor explicitly supports those companies that are making the effort to operate in a fashion that benefits both society and the environment.
The long-term outlook for investment returns of such strategies is also sound. Not only does a responsible strategy target companies which are best positioned to provide long-term sustainable returns due to their superior governance structures, it also avoids investing in companies which are susceptible to large operational and legal risks.
The fund tracks the Solactive Eurozone Sustainability Index and invests in the 30 largest companies which meet the environmental and social criteria set out by sustainability ratings agency Oekom Research. These ratings are updated on a quarterly basis to ensure that the holdings are adjusted should the criteria change. Each constituent is subject to a cap of 10% to prevent the fund from becoming overly concentrated in a single company.
To be included in the selection universe, companies must be certified with the Oekom “Prime” Status. To determine this, companies are evaluated, on average, against 100 criteria to determine which are leaders in their industry with regards to environmental and social sustainability.
Further to this, Oekom Research carries out a comprehensive negative screening process. The fund avoids investing in companies generating significant revenues from controversial business areas such as abortion, drugs, alcohol, coal and oil, embryonic research, gambling, weapons, nuclear power, pornography or tobacco. Constituents are also screened based on controversial business practices such as animal testing, malpractice, human and labour rights, and controversial environmental practices.
It should be noted that strict ethical screens such as these can lead to significant differences in sector exposures relative to unrestricted benchmarks. For example, it can be expected that the fund will be underweight oil and gas companies; should these stocks outperform, all else equal, the fund will lag broader market benchmarks.
The ETF is physically replicated and listed on the Xetra segment and Börse Frankfurt. It carries a total expense ratio of 0.40%. The German name of the fund is Deka Oekom Euro Nachhaltigkeit UCITS ETF.