Invesco has launched a suite of low-cost equity ETFs in Europe that screen companies based on environmental, social, and governance (ESG) characteristics.

Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco

The funds, which have been listed on London Stock Exchange, are linked to ESG-screened versions of well-known MSCI indices that target the global developed (MSCI World), US (MSCI USA), and European (MSCI Europe) equity markets.

With expense ratios ranging between 0.12% and 0.19%, the funds have been priced to compete with low-cost ESG suites offered by rivals such as BlackRock, Lyxor, and UBS.

Chris Mellor, Head of EMEA ETF Equity Product Management at Invesco, commented, “As ESG strategies become mainstream, many investors are now wanting to use them as core holdings for their portfolios. That places a greater emphasis on transparency, overall costs, and the volatility compared to other funds. These passive ETFs aim to provide similar returns to a broader non-ESG index and with similar costs while offering the transparency, simplicity, and easier access granted by our ETF structure.”

Methodology

Each fund’s underlying index first excludes firms with any association to controversial weapons, nuclear weapons, or oil sands, while also eliminating companies that derive more than a certain level of revenue from conventional weapons, thermal coal, and tobacco. Additionally, firms that are embroiled in severe ESG-related business controversies are also removed.

The remaining constituents are then weighted using ratings from MSCI ESG Research that evaluates how well each company manages key ESG issues relative to industry peers. This approach increases the weight of firms with more robust ESG profiles while also favouring companies that have improved their profile since the previous evaluation.

Reconstitution occurs semi-annually, and the index is rebalanced quarterly. Firms that are found to be involved in ESG business controversies may be removed from the index at any quarterly rebalance.

Each fund tracks its index through physical replication. According to Invesco, one of the main reasons the firm decided to use physical replication for these ETFs is for access to voting rights. Mellor explains, “The ETF will vote in line with the majority holder of the active-equity shares held by Invesco, leveraging the active-equity expertise and comprehensive proxy voting reviews conducted by our teams around the world. In this way, investors know their passive holdings are still making an active difference.”

Maria Lombardo, Head of Responsible Investment EMEA at Invesco, added, “We have been implementing ESG into client portfolios for more than 30 years now, and actively engaging with companies in which we are invested on various ESG issues. We believe proxy voting is an integral part of our investment process, for active and passive strategies, and that the right to vote proxies should be managed with the same care as all other elements of the investment process. On that basis, we vote for proposals that, in our view, can maximize long-term shareholder value.”

The Funds

The Invesco MSCI World ESG Universal Screened UCITS ETF tracks the MSCI World ESG Universal Select Business Screens Index. It is available to trade in US dollars and pound sterling under the tickers ESGW LN and ESGG LN respectively. The fund’s expense ratio is 0.19%.

The Invesco MSCI USA ESG Universal Screened UCITS ETF tracks the MSCI USA ESG Universal Select Business Screens Index. It is available to trade in US dollars and pound sterling under the tickers ESGU LN and ESGS LN respectively. The fund’s expense ratio is 0.12%.

The Invesco MSCI Europe ESG Universal Screened UCITS ETF tracks the MSCI Europe ESG Universal Select Business Screens Index. It is available to trade in pound sterling under the ticker ESGE LN. The fund’s expense ratio is 0.16%.

The ETFs are expected to cross-list on Deutsche Börse Xetra in due course.

Invesco launched its only other ESG-focused ETF – the Invesco MSCI Europe ESG Leaders Catholic Principles UCITS ETF (ICFP GY) – at the start of the year. This fund trades on Xetra and Borsa Italiana, is also linked to an index from MSCI which screens for firms that are aligned with ESG as well as Catholic principles. The fund has an expense ratio of 0.30% and has accumulated around $40 million in AUM.