DWS has launched of a new range of environmental, social and governance (ESG) Xtrackers ETFs designed to provide exposure to ESG-filtered equity indices tracking global, US, Japanese and European markets. To explain why the company sees sustainability as one of its key values. ETF Stream spoke to Amanda Rebello, head of Passive distribution, UK and Ireland.
Can you explain the four new funds detail and their market exposures?
The four new ETFs provide exposure to global, US, Japanese, and European equities, tracking MSCI indices that have been filtered to meet strict environmental, social and governance (ESG) standards, as well as meeting low carbon requirements. For example, for acquiring ESG-filtered global equity exposure the starting point is the MSCI Word Index comprising 1,649 companies. Two screening methodologies are applied to the companies in the index, one based on broader ESG requirements and one based on carbon emissions specifically. Companies with exposure to nuclear power, controversial weapons or tobacco production are excluded, as are companies with excessive revenues (defined as USD 1 billion or 50% of revenues) coming from areas such as alcohol, gambling or conventional weapons. The remaining companies are then given an ESG rating relative to peers, with those below a certain threshold excluded. Meanwhile, a 'controversies screen' is also applied to exclude companies deemed to be involved in serious ESG controversies. This is then combined with a carbon emissions screening methodology based on assessments of current emissions and potential emissions, and designed to filter out the most carbon intensive companies. The final ESG/low carbon MSCI World-derived index, which our ETF tracks, comprises 635 companies from the original 1,649, weighted by market capitalisation, as of 30 April 2018.
How much more demand have you seen for ESG products in recent years?
While significant assets are not there yet, there is increasing demand from discretionary managers and multi-managers to build ESG variants of their standard proposals. Our ESG funds have scope to be included in those.
What do investors need to be aware of when it comes to the differing ESG products available on the market?
There are a number of aspects an investor may look at. They may look at the differences in benchmarks, and in particular how ESG is defined, as this can be quite subjective. They will also look at whether the indices take a tilting and/or an exclusions approach. And they may also look at what sources for the ESG data have been used to construct the benchmark indices. What indexes are the four new funds following and why have they been chosen?
The four new funds all follow indices that are part of the MSCI ESG Leaders Low Carbon ex-Tobacco Involvement series. The MSCI methodology is very robust, and we also felt it was important for investors to have a low-carbon element in there. We have written research on the investment implications of physical climate risk, for example.
What are the charges for the fund?
The ETFs tracking global, Japanese and European ESG benchmarks all have an annual all-in fee, or TER, of 0.20%. The product tracking the US benchmark has a slightly lower annual all-in fee of 0.15%. For this type of product, providing sophisticated ESG filtering, these are competitive fees.
