New York-based exchange-traded fund provider Global X Funds has launched the Global X Conscious Companies ETF (NASDAQ: KRMA), which tracks the equities of US-listed companies that achieve financial performance in a sustainable and responsible manner, exhibiting positive environmental, social and corporate governance (ESG) characteristics.
The Global X Conscious Companies ETF selects and invests in companies which aim to increase value for a variety of stakeholders including employees, customers, communities, suppliers, and stock and debt holders.
The Global X Conscious Companies ETF tracks the Concinnity Conscious Companies Index, which draws on dozens of sources to identify companies that have demonstrated a long term focus on creating positive outcomes for a variety of stakeholders, including employees, customers, communities, suppliers, and stock and debt holders.
Sustainable & responsible themes are a key driver of investment flows in the US with over $6tn in assets under management allocated to the space, according to the US Sustainable Investment Forum.
Last month Strategy Shares launched the Strategy Shares EcoLogical Strategy ETF (HECO), which uses ecologically-focused criteria to identify US and foreign companies that have positioned their business to respond to increased environmental legislation, cultural shifts towards environmentally conscious consumption, and capital investments in environmentally oriented projects. Prior to this, in May, Global X launched two thematic ETFs based on evolving demographics.
Alex Ashby, Director of Product Development at Global X, commented in a statement: “Investors are increasingly looking at socially responsible investing not only as a values-driven decision, but also as one that can potentially lead to better long term returns.
“Companies that demonstrate a commitment to the Multi-stakeholder Operating System (MsOS) tend to treat each of their stakeholders well and take a longer term view of corporate performance. By partnering with Concinnity Advisors, who are experts in assessing the MsOS approach, our goal was to bring to market a product that identifies the companies that are achieving positive outcomes across all stakeholder groups and are setting the standard for taking a responsible and sustainable approach to operating a business.”
The starting universe for potential constituents are all US-listed companies with market capitalisations in excess of $2bn and 30-day average daily trading values greater than $4m (approximately 1,400 firms).
The initial screening stage is comprised of roughly 40 information sources that recognise companies for achieving various positive outcomes typically expected from firms guided by a multi-stakeholder operating system. These data sources include Fortune Magazine’s ‘list of best companies to work for’, as well as Forbes’ lists of ‘most sustainable corporations’ and ‘most ethical companies’. Approximately 700 firms pass through this initial stage.
The second screening stage uses a composite score analysis which marks them according to four pillars, which include ESG, ESC (Employee, Supplier & Customer), Quality of Management, and Intangible Asset Management. Strong performance in all four areas results in selection for the Concinnity MsOS list (approximately 300 firms). Selection to the list for three consecutive years passes the firm for inclusion in the Concinnity Conscious Companies Index.
All final constituents are assigned an equal weight in the index as of the selection date. The index is reconstituted annually in October and re-balanced on a quarterly schedule.
As of 15 July 2016 the index has returned an annualized return of 15.3% year-to-date and 14.6% per annum since inception (July 2010). Its annualized volatility since inception is 15.4%.
As of 11 July 2016 the ETF has 115 holdings with the largest sector exposures to the consumer discretionary (20.5%), industrials (17.6%), information technology (17.3%), consumer staples (12.2%) and health care (10.1%) sectors.
The fund has a total expense ratio of 0.43%.