Legal & General Investment Management (LGIM) has announced the listings of the L&G Europe Equity (Responsible Exclusions) Ucits ETF (exchange traded fund) and the L&G US Equity (Responsible Exclusions) Ucits ETF on Deutsche Börse. The ETFs are in partnership with London based index provider Foxberry.
They offer German investors broad market exposure, with a dynamic approach to responsible investing, overseen the advisory Sustainability Committee comprised of ESG experts.
The Responsible Exclusions ETFs track the Foxberry Sustainability Consensus Europe Total Return Index and the Foxberry Sustainability Consensus US Total Return Index. The funds have raised a combined total of €700m from Finnish pension funds Varma.
In addition to providing broad market exposure, the ETFs are expected to be highly correlated to their underlying European and US equity markets and are weighted by market capitalisation. They use full replication to offer investors direct exposure to their underlying assets. The ETFs were also listed on the London Stock Exchange (LSE) last year, with the L&G Europe Equity (Responsible Exclusions) UCITS ETF also being listed on Borsa Italiana in November.
The indexes tracked by the ETFs leverage the expertise of the advisory Sustainability Committee (the Committee) to help construct the portfolio. The Committee's recommendations for exclusion are implemented systematically with a rules-based methodology. With experts from a diverse range of fields, the Committee currently includes luminaries with significant Environmental, Social and Governance (ESG) experience including Tomas Franzen and Gustaf Hagerud who were both instrumental in establishing the responsible investing frameworks of Swedish pension funds AP2 and AP3. They provide insight into corporate responsibility and ESG investing, drawing on the expertise of major asset owners, such as institutional pension funds. Researching market developments, the Committee monitors companies to identify those engaged in irresponsible behaviour across traditional industry classifications.
Companies are actively assessed against a range of criteria and this dynamic investment approach minimises exposure to companies that are likely to face longer-term challenges from for example, more stringent regulation, consumer boycotts or environmental hazards. Guided by the Committee, the funds will exclude companies that become less responsible. It will also account for those companies that become more responsible, which may otherwise be missed by static or sector-based exclusion. To encourage and build on consensus in the investment community, the Committee will take a collaborative approach that allows investors and interested parties the chance to review summary findings and contribute insights and suggestions to the process.
As a responsible asset owner, LGIM also engages with the boards of the companies in which both ETFs hold shares to promote best practices. This active engagement in corporate governance can help specifically target any companies that may be flagged by the committee's ‘watch list'.