Invesco launches ESG Canadian equity ETF on TSX

Oct 9th, 2020 | By | Category: Equities

Invesco has launched a new ETF on the Toronto Stock Exchange providing ethically screened exposure to Canadian equities.

Invesco launches ESG Canadian equity ETF on TSX

The fund is one of the most economical ETFs to provide ESG-screened exposure to Canadian equities.

The Invesco S&P/TSX Composite ESG Index ETF (ESGC CN) is the first Canadian-listed ETF to track the S&P/TSX Composite ESG Index.

The index is a modified version of the widely followed S&P/TSX Composite Index which weeds out certain companies based on environmental, social, and governance (ESG) criteria.

The ESG methodology first removes companies with weak adherence to UN Global Compact principles, those involved in tobacco production or controversial weapons, and those with meaningful levels of revenue derived from tobacco or thermal coal.

The remaining constituents are then assigned an ESG score based on SAM’s ‘Corporate Sustainability Assessment’. This score is either calculated directly by a company completing a comprehensive assessment (together with supporting documents), or – in the absence of this – by using publicly available information.

Those firms with the lowest ESG scores are removed, whilst aiming to maintain 75% of the float-adjusted market capitalization of each Global Industry Classification Standard (GICS) Industry Group within the S&P/TSX Composite Index.

Constituents are weighted by float-adjusted market cap. Reconstitution and rebalancing occur annually in April with buffer rules helping to limit unnecessary turnover.

The methodology aims to filter out the most controversial companies and provide an ESG tilt while still maintaining a risk/return profile similar to the broad Canadian equity market. According to Invesco, this process makes the ETF suitable as a core holding in socially responsible investors’ portfolios.

When comparing the two indices, the ESG-screened version consists of 95 names, which is notably less than the 223 in the starting universe. By design, however, sector allocations are similar – the largest exposures are financials (28.3%), materials (15.8%), industrials (14.5%), information technology (11.7%), and energy (11.3%).

By screening out over half of the initial companies, the ESG index is notably more concentrated at the individual security level with the top ten firms making up 52.7% of the total weight, compared to 38.4% in the headline index, while the biggest constituent, Shopify, accounts for 8.9% (vs. 6.5%).

In line with core equity products, the fund comes with a low management fee of just 0.15%, making it one of the most economical vehicles for gaining ESG-focused Canadian equity exposure.

Jason McKay, Head of Wealth Management Intermediaries, Invesco Canada, commented, “Invesco has one of the longest track records in the ESG space, having launched clean tech ETFs in 2005. The newest launch of the Invesco S&P/TSX Composite ESG Index ETF will further expand our global ESG product suite with a Canadian focus, offering investors an ESG overlay on a key benchmark of the Canadian equity market.”

Reid Steadman, Managing Director and Global Head of ESG Indices at S&P Dow Jones Indices, added, “In the last year, ESG has joined the mainstream of investing as market participants increasingly see the importance and relevance of indices that incorporate sustainability data and principles and allow them to achieve their ESG investment goals while attaining performance largely in line with the market. We’re excited to partner with Invesco on the launch of the first ETF product in Canada based on the S&P/TSX Composite ESG Index.”

Invesco also introduced Canada’s first ESG-screened S&P 500 ETF in March of this year. The Invesco S&P 500 ESG Index ETF (ESG CN) tracks the S&P 500 ESG Index which applies the same methodology as above to the bellwether US large-cap equity index. The fund’s management fee is also 0.15%.

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