State Street Global Advisors has launched three new ETFs designed to help investors reinforce core allocations while incorporating environmental, social, and governance (ESG) considerations into their portfolios.
SSGA has rolled out three new core portfolio ETFs with sustainable investment mandates.
The funds, which have been listed on NYSE Arca, provide low-cost exposure to different equity segments, specifically US small-cap, developed ex-US, and emerging markets.
They are the SPDR S&P SmallCap 600 ESG ETF (ESIX US) and SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX US), both of which come with an expense ratio of 0.12%, and the SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG US), which is pitched at 0.16%.
Brie Williams, Head of Practice Management at State Street Global Advisors, said: “As ESG awareness and education improves, investors are increasingly seeking to integrate best-in-class solutions across their entire portfolio. With the launch of ESIX, RDMX, and REMG, investors can bring the potential benefits of ESG investing to the building blocks of a well-diversified equity portfolio.”
US small-cap
The SPDR S&P SmallCap 600 ESG ETF tracks the S&P SmallCap 600 ESG Index which closely replicates the risk and return profile of the widely followed S&P SmallCap 600 Index while providing a significant boost in ESG performance.
Companies involved in the production of controversial weapons, thermal coal, and tobacco are excluded as well as firms embroiled in ESG controversies and those that perform poorly in relation to the United Nations Global Compact Principles are all removed from the parent index.
The remaining constituents are then assigned ESG scores calculated by SAM, an ESG ratings firm that is a part of S&P Global. ESG scores are based on SAM’s Corporate Sustainability Assessment which uses company-provided data, publicly available information, or a combination thereof.
The index includes the companies with the highest ESG scores while targeting 75% of the market capitalization within each Global Industry Classification Standard (GICS) sector.
Constituents are weighted by float-adjusted market capitalization.
Developed ex-US
The SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF tracks the Bloomberg SASB Developed Markets ex US Large & Mid Cap ESG Ex-Controversies Select Index which was created through a partnership between Bloomberg, SSGA, and the Sustainability Accounting Standards Board (SASB), a body that develops and disseminates sustainability accounting standards.
The index screens a universe of developed market stocks, excluding those listed in the US, to remove violators of UN Global Compact principles, companies with extreme event controversies, and firms with business lines involved in controversial weapons, civilian firearms, thermal coal extraction, or tobacco.
The remaining constituents are then weighted based on SSGA’s ‘R-Factor’ metric, a proprietary score measuring the performance of a company’s business operations and governance as it relates to financially material ESG challenges facing the company’s industry.
The score draws on data from multiple ESG research providers (ISS-ESG, Sustainalytics, and Vigeo-EIRIS (now Moody’s ESG Solutions)) and leverages the SASB framework to generate a unique ESG score for listed companies.
Emerging markets
The SPDR Bloomberg SASB Emerging Markets ESG Select ETF tracks the Bloomberg SASB Emerging Markets Large & Mid Cap ESG Ex-Controversies Select Index which utilizes the same approach as described above for the developed ex-US index but applied to a universe of large and mid-cap stocks from emerging markets.
Following these latest launches, SSGA offers 11 US-listed ETFs with ESG mandates. Collectively, the funds house over $3.1 billion although the majority of assets are contained within two ETFs providing ESG-aware exposure to the S&P 500 – they are the $1.4bn SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX US) and the $450m SPDR S&P 500 ESG ETF (EFIV US).
According to SSGA, the firm’s US-listed ESG ETF suite attracted outsized inflows of $985m last year, highlighting how the intersection of sustainable and core investing has become a fertile ground for asset managers to grow their business.