DWS has added an eighth fund to its suite of thematic ETFs in Europe that target companies positively impacting the United Nations’ Sustainable Development Goals (SDGs).
Olivier Souliac, Head of Indexing, Xtrackers Products at DWS.
Adopted by UN member countries in September 2015, the SDGs are a set of 17 goals established to guide international cooperation on issues such as water sanitation, poverty, climate change, and gender equality.
The goals, which are further broken down into 169 measurable targets, seek to promote active participation from governments, corporations, and investors.
DWS’s existing SDG ETF suite consists of six funds that individually target the third, sixth, seventh, ninth, eleventh, and twelfth SDGs which relate to good health, clean water & sanitation, affordable & clean energy, industry & innovation & infrastructure, sustainable cities, and the circular economy, respectively. A seventh ETF, meanwhile, delivers diversified exposure across multiple SDGs.
The newest listing, the Xtrackers MSCI Global SDGs Social Fairness Contributors UCITS ETF, invests in companies that are positively aligned with multiple ‘Socially Oriented’ SDGs. Specifically, these are the first, second, fourth, fifth, eighth, and tenth SDGs which relate to poverty eradication, food security, accessible education, gender equality, full & productive employment, and reducing inequality.
Olivier Souliac, Head of Indexing, Xtrackers Products at DWS, commented: “With the Xtrackers MSCI Global SDGs Social Fairness Contributors UCITS ETF, DWS is offering a useful addition to the existing ETF range. It is the first index-based strategy that addresses comprehensive social issues using a thematic approach based on ESG data. It offers investors a broadly diversified and representative allocation to companies that are better aligned with achieving social SDGs.”
The fund has been listed on the London Stock Exchange in US dollars (Ticker: XDGS LN) and on Deutsche Börse Xetra in euros (XDGS GY).
Similar to DWS’s existing SDG ETFs, XDGS comes with an expense ratio of 0.35% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
Methodology
The ETF tracks the MSCI ACWI IMI SDG Social Fairness Select Index which is constructed from MSCI’s flagship global equity benchmark – the MSCI ACWI IMI – which comprises large, mid, and small-cap stocks from both developed and emerging markets.
The methodology first excludes companies that are embroiled in severe ESG-related controversies or are proven UN Global Compact violators, as well as firms with business activities linked to controversial and civilian weapons, tobacco, thermal coal, and oil sands. Additionally, firms with business activities that are deemed to be in conflict with any of the 17 SDGs are also removed from the selection pool.
The remaining stocks are then assigned ESG ratings, based on MSCI‘s seven-point scale from CCC to AAA, which reflect a company’s performance relative to sector peers across a broad range of ESG metrics. Firms with the bottom two ESG ratings of CCC or B are excluded.
From the screened universe, the index then builds two separate portfolios: an ‘SDG Impact’ portfolio and an ‘SDG Thematic’ portfolio, each of which accounts for 50% of the total index weight.
The SDG Impact portfolio consists of stocks that generate at least 50% of their revenue from products and services that directly support the targeted SDGs. In terms of the overarching Social Fairness theme, eligible products and services are related to areas such as nutrition, sustainable agriculture, major disease treatment, sanitation, contraceptives, affordable real estate, education, SME finance, and connectivity access, among others. Constituents within the SDG Impact portfolio are weighted by the product of their float-adjusted market capitalization and their aggregated revenue linked to the targeted SDGs.
The SDG Thematic portfolio, meanwhile, consists of companies that are not part of the SDG Impact portfolio but are assessed as helping to directly promote growth, development, and safeguards for employees and communities. Constituents within the SDG Thematic portfolio are weighted by their float-adjusted market capitalization.