Horizons ETFs Canada has launched the Horizons Global Sustainability Leaders Index ETF (ETHI CN) on Toronto Stock Exchange, providing exposure to a globally diversified portfolio of companies with robust ESG (environmental, social, and governance) profiles.
Steve Hawkins, President and CEO of Horizons ETFs.
The fund is Horizons’ first ETF to explicitly target the socially responsible investing theme.
It tracks the Nasdaq Future Global Sustainability Leaders Index which consists of 100 of the world’s largest companies that have demonstrated a core commitment to environmentally sustainable business practices.
The index sources potential constituents from a pool of developed market securities with market capitalizations greater than $3 billion and three-month average daily dollar trading volumes greater than $1 million. Common equities, depository receipts, and REITs are all eligible for inclusion in the index.
It appears as though the index was initially designed to cater to Australian investors as securities listed Down Under are not up for selection. Indeed, the index is used as the underlying reference for the ASX-listed BetaShares Global Sustainability Leaders ETF (ETHI AU). Both Horizons ETFs and BetaShares are part of the Mirae Asset Global Investments Group.
The index incorporates several measures to eliminate firms that do not fit the required ESG profile.
Firstly, companies engaged in activities such as fossil fuel production, armaments, tobacco, chemicals of concern, gambling, and animal testing are excluded from the selection pool. This stage also excludes firms which derive more than a threshold amount of their income from other controversial industries – such as more than 20% of revenue from alcohol sales or more than 33% from junk food.
Secondly, companies must either have a carbon impact score at least 60% lower than their industry average, as determined by a specialist external advisory committee, or be engaged in activities that can help reduce carbon use by other industries.
The index then selects the 100 largest stocks from the remaining pool of constituents and weights them by market capitalization subject to a single security cap of 4% and a floor of 0.5%.
The index is reconstituted and rebalanced annually in April and incorporates certain buffers (both in terms of constituents’ market capitalizations as well as their carbon impact scores) to reduce turnover.
“There are more and more ethically conscious Canadians now looking to ‘put their money where their mouth is’ – aligning their investments with a belief in a better future for our planet,” said Steve Hawkins, President and CEO of Horizons ETFs. “We believe ETHI provides a good balance between buying 100 of the world’s largest and most successful companies that have also demonstrated a key commitment to ethical and environmentally sustainable business practices. We’re proud to introduce our first responsible investing product aimed at mitigating climate change and to empower Canadians to invest according to their principles.”
The fund comes with a management fee of 0.65%.