Invesco continues to broaden its ESG ETF offering with the launch of two new funds focussed on listed companies in Japan and the Pacific ex Japan region. The passive, physically invested ETFs are designed to follow the performance of customised versions of MSCI ESG Universal indices. They will use the same methodology as the firm’s existing suite of MSCI ESG Europe, USA and World equity products, which excludes controversial business practices and applies “ESG Momentum” to increase exposure to companies that are actively improving their ESG profile.
Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco, says: “Different investors will often vary in their objectives, and this is most evident in the ESG space. Generally speaking, the more you exclude from an index, the more likely the performance will deviate from the base index. While that is acceptable for some investors, it’s not for others. Many want to reduce their portfolio’s carbon footprint and improve other ESG characteristics but at the same time maintain their overall risk and expected returns. We designed these ETFs to provide investors with materially significant ESG improvements for their core equity exposure.”
The indices are constructed from their parent MSCI index by first excluding any stock that is involved in controversial, conventional or nuclear weapons, civilian firearms, oil sands, thermal coal, tobacco or recreational cannabis. Any company that has faced severe controversies over ESG issues in the past three years or has a very low MSCI ESG score is also removed from the index. The remaining stocks are re-weighted by the product of their ESG scores, ESG trend scores and market capitalisation.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, says: “With 60 per cent of all equity ETF flows last year going into funds with an ESG objective, demand is clearly strong. We believe ESG will be embedded even more broadly into portfolios with investors no longer needing to sacrifice their investment objectives to follow their principles. Our suite of MSCI ESG Universal ETFs offers investors low-cost tools to construct diversified equity portfolios. We will continue building out our ESG offering in response to market opportunities and driven by investor demand.”
