Invesco has boosted its line-up of socially responsible equity funds with the launch of the Invesco MSCI Emerging Markets ESG Universal Screened UCITS ETF.

Invesco’s latest ETF provides broad exposure to emerging markets while tilting to firms with strong and improving ESG profiles.

The fund provides broad emerging markets exposure while screening out companies from non-ESG-friendly industries and tilting towards firms with robust and improving ESG profiles.

It has listed on London Stock Exchange in US dollars (ESEM LN) and pound sterling (ESES LN) and on Xetra in euros (ESGM GY).

Methodology

The ETF tracks the MSCI Emerging Markets ESG Universal Select Business Screens Index using direct physical replication.

The index is derived from the parent MSCI Emerging Markets Index, a preeminent benchmark for large- and mid-cap stock market performance across 26 developing countries.

The methodology first excludes issuers that have faced severe ESG controversies (including UN Global Compact violations) over the last three years, as well as those involved in controversial weapons, conventional weapons, nuclear weapons, oil sands, thermal coal, civilian firearms, recreational cannabis, or tobacco.

Companies that have an MSCI ESG rating of CCC, the lowest ESG rating per MSCI‘s ESG rating scale, are also removed from the selection pool.

The securities that survive this screen are then assigned ESG scores which reflect MSCI’s assessment of both the security’s current ESG rating, as well as the trend in that rating, defined as the change in the security’s ESG rating over time. This combined ESG score is then applied to re-weight the eligible securities from their free-float market cap weights in the parent index, subject to an individual security cap of 5%.

The fund comes with an expense ratio of 0.19%.

Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco, said: “As risk appetites have been increasing on the back of economic recovery, we are seeing some investors positioning their portfolios in higher-growth areas. Flows into emerging market ETFs during the first half of the year were broadly equal to those into Europe and trailed only those into global and US equities. At the same time, we see that 44% of all net flows have been going into ESG products, with more than $1.2 billion into our range of MSCI ESG Universal Screened ETFs. We believe these trends could continue as many emerging markets are well-positioned economically as the world comes out of the pandemic and as investors appreciate the potential benefits that ESG strategies can offer their portfolios.”

Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, added: “When we speak to investors about what is most important to them when selecting responsibly invested funds, performance and engagement are normally at the top of their list. We can satisfy these demands with passive ETFs by choosing the right benchmark and having the people and systems in place to track it closely, and by following a robust engagement process. We vote the shares held by our passive ETFs in line with the largest active holder of those shares within the Invesco group. That combined vote can give us a much bigger voice on key ESG decisions.”

Invesco offers seven other ETFs that harness MSCI’s ‘ESG Momentum’ approach. The other funds in the suite target global developed, US, European, Europe ex-UK, eurozone, Japanese, and developed Asia Pacific ex-Japan equity markets. The ETFs come with expense ratios between 0.09% and 0.19% and collectively house over $1.3 billion in assets.