State Street Global Advisors has launched a new equity ETF in Australia providing exposure to a subset of S&P/ASX 200 stocks adjudged to exhibit higher environmental, social, and governance (ESG) attributes.
The fund becomes the cheapest ETF in Australia to provide a form of socially responsible exposure to the local equity market.
The SPDR S&P/ASX 200 ESG ETF (E200 AU) has listed on the Australian Securities Exchange and comes with an expense ratio of 0.13%.
The fund is linked to the S&P/ASX 200 ESG Index which derives its constituents from the parent S&P/ASX 200 Index universe, Australia’s foremost stock market benchmark.
The parent index consists of the 200 largest ASX-listed securities, including common shares, preferred stock, and foreign listings, and represents roughly 80% of the country’s total market cap.
The methodology excludes companies involved in the controversial weapons industries as well as firms with significant operations in tobacco and thermal coal. Companies with poor adherence to UN Global Compact principles are also removed.
The remaining constituents are then assigned an ESG score based on SAM’s (formerly RobecoSAM) ‘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/ASX 200.
The index is weighted by float-adjusted market capitalization and is reconstituted and rebalanced annually in April.
According to S&P Dow Jones Indices, the methodology provides an index that is aligned with socially responsible investing values while maintaining a risk-and-return profile similar to the parent index. While the ESG index has a significantly reduced constituent count of 102 securities, it has closely tracked the parent S&P/ASX 200 Index using back-tested simulation.
Source: S&P Dow Jones Indices.
The largest sector exposures are financials and materials with weights of 22.9% and 20.6%, respectively, followed by healthcare (14.5%), consumer discretionary (7.9%), and consumer staples (7.6%).
While investors can access unrefined Australian equity exposure for as little as 0.07% through the BetaShares Australia 200 ETF (A200 AU), SSGA’s latest offering becomes the cheapest vehicle for socially responsible exposure to the country’s stock market.
Commenting on the launch, Meaghan Victor, Head of SPDR ETF Asia Pacific Distribution at SSGA, said, “For the first time, investors will be able to access an ESG fund with a similar risk-return profile to the Australian equity market benchmark, the S&P/ASX 200 Index. E200 provides a sustainable alternative to the SPDR S&P/ASX 200 Fund, which is a staple investment for many institutions, advisers, and retail investors.”
She added, “ESG investing can have an impact on a company’s long-term performance, allows clients to invest based on their values, and has a demonstrated link to sustainable long-term value creation. And now, it doesn’t need to come at a premium. E200 will spark a new wave of investing for institutions, intermediaries, platforms, financial advisers and retail investors alike.”
Other ETFs in the ESG Australian equity category include the A$560m BetaShares Australian Sustainability Leaders ETF (FAIR AU), which comes with an expense ratio of 0.49%; the A$220m Russell Investments Australian Responsible Investment ETF (RARI AU), which has an expense ratio of 0.45%; and the A$60m VanEck Vectors MSCI Australian Sustainable Equity ETF (GRNV AU), which costs 0.35%.