State Street Global Advisors, the asset manager behind the SPDR brand of ETFs, has announced the launch of the SPDR S&P 500 ESG Screened UCITS ETF. The fund is aimed at investors who seek core US large-cap exposure whilst adhering to a responsible investment approach.

Rebecca Chesworth, Senior ETF Strategist, State Street Global Advisors.

The ETF tracks the newly launched S&P 500 ESG Exclusions II Index, which offers investors access to the flagship S&P 500 Index with an ESG screen.

The index methodology has been devised to exclude companies based on data from ESG analytics companies Sustainalytics and RepRisk.

The index is reviewed quarterly and components are weighted by free-float market capitalization. It aims to offer a low tracking error and similar risk-return characteristics to the S&P 500.

The exclusion criteria aim to eliminate exposure to controversial weapons, civilian firearms, tobacco, and thermal coal, as well as companies that do not comply with the principles of the UN Global Compact. Companies that are deemed non-compliant with the principles are excluded from the eligible universe.

A total of 36 stocks in the S&P 500 are currently excluded by the index screening process.

The top 10 largest exclusions (and their exclusion category) are Berkshire Hathaway (thermal coal), Johnson & Johnson (UNGC principle non-compliant), Boeing Co (controversial weapons), Wells Fargo & Co (UNGC principle non-compliant), Honeywell (controversial weapons), Phillip Morris International (tobacco), Lockheed Martin (controversial weapons), Altria Group (tobacco), Duke Energy (thermal coal), and Northrop Grumman (controversial weapons).

The index methodology incorporates a ‘fast-exit’ feature whereby if a company is reported by RepRisk to have exceeded a particular risk level, it is removed from the index (and subsequently the ETF) within two business days.

The resulting portfolio has a low tracking error (0.58% annualised over the last 10 years) and similar performance characteristics to the parent S&P 500 benchmark. The active weight by sector is less than 3 percent in all cases (the largest being information technology at +2.24%, followed by industrials at -1.89%).

Rebecca Chesworth, Senior ETF Strategist at State Street Global Advisors, said, “The S&P 500 Index is one of the most popular indices amongst equity investors, with over $125 billion of assets tracking the benchmark in UCITS ETFs alone. Subsequently, there is strong demand for an ETF linked to this index with ESG overlay. We have developed a fund with exclusion criteria based on investor demand. The screens are based on the responsible policies of leading asset owners and aim to reduce reputational and idiosyncratic risks.”

Mandy Chiu, Head of ETF Product for EMEA and APAC, at SSGA, added, “State Street Global Advisors now manage over $200 billion of ESG assets and are a leader in this area. It is clear investors are increasingly focused on seeing ESG concerns addressed in their portfolios and want to take advantage of the many benefits offered by ETFs to do this. The launch of our new SPDR S&P 500 ESG Screened UCITS ETF illustrates our determination to meet this demand.”

The fund has listed on Xetra (SPPY GY), Euronext Amsterdam (500X NA) and Borsa Italiana (500X IM) and is expected to list on SIX Swiss Exchange in due course. It comes with a TER of 0.10%.

The fund complements the issuer’s SPDR STOXX Europe 600 ESG Screened UCITS ETF which provides exposure to the STOXX Europe 600 index. This fund was unveiled in October with listings on Xetra (ZPDX GY), Borsa Italiana (600X IM), and Euronext Amsterdam (600X NA) and subsequently SIX Swiss Exchange (600X SW).