Responsible investing used to be considered a niche activity, of interest mainly to campaign groups and specialists. Now, every investor faces increasing pressure to invest sustainably.
This pressure is coming both from the top down and from the bottom up—from policymakers and regulators on the one hand, and from the owners of assets on the other.
Pressure from policymakers means significant new investments into projects and companies promising a sustainable future – in March 2018, the European Commission predicted that we need to invest an extra €170 billion a year until 2030 to meet the region’s renewable energy and climate change targets.
Over $22 trillion of assets worldwide are allocated to strategies devoted to sustainable investing, according to the Global Sustainable Investment Alliance[1], a 25% increase since 2014.
Pressure from the bottom up means that investment approaches are changing to bring environmental, social and governance (ESG) factors to the forefront of decision-making.
ESG investing covers a broad range of topics: environmental issues such as climate change, water, fracking and methane; social issues such as human rights and labour standards; and governance issues such as tax avoidance, executive pay and corruption.
A transparent and logical ESG framework is therefore important to help frame the investment strategy and implementation approach.
Should the ESG strategy be based on sector screens, norm screens or sovereign screens? Should the implementation approach focus on selecting the best stocks in the underlying universe, using theme or impact performance indicators, or on excluding stocks seen as non-compliant?
DWS is a leader in ESG investing.
We operate a proprietary ESG consensus ratings system, while also partnering with external index providers to identify suitable investment solutions.
We integrate ESG factors into a range of passive equity, fixed income and multi-asset portfolios.
Our corporate governance team has over 20 years of governance experience and follows a qualitative proxy voting process, including an active voting stance on climate change-related shareholder proposals.
We also conduct thematic ESG research, partnering with external experts and helping integrate ESG across all internal DWS divisions.
ETFs offer several competitive advantages for investors seeking to integrate an ESG strategy into their portfolio:
The MSCI ESG Leaders Low Carbon Leaders Ex Tobacco Involvement Indices provide exposure to companies with the highest ESG ratings relative to their sector and regional peers, while restricting current and future carbon exposure.
The indices are constructed using two screening processes, and a tobacco exclusion, starting with the respective parent MSCI index (e.g. MSCI World TRN INDEX)of stocks as the universe of eligible securities.
For example, for the MSCI World ESG Leaders Low Carbon Ex Tobacco Involvement 5% Index, the stocks in MSCI World are used as the starting universe.
In order to create the index, firstly, companies with any significant exposure to alcohol, gambling, conventional weapons or civilian firearms are excluded, as are companies with any involvement in nuclear power or controversial weapons. Companies below a minimum ESG rating of BB, and those involved in a serious ESG controversy, as measured by MSCI, are also screened out (MSCI rates companies on an ‘AAA‘ to ‘CCC’ scale according to their exposure to industry-specific ESG risks and their ability to manage those risks relative to peers).
Secondly, companies with a high current or future intensity of carbon emissions are excluded from the starting universe.
Any stocks common to the lists resulting from both screens (not excluded by either), with under 5% revenue exposure to tobacco are then chosen and weighted by market capitalisation to form the respective MSCI ESG Leaders Low Carbon Leaders Ex Tobacco Involvement Index.
Screening stocks for the MSCI World ESG Leaders Low Carbon Leaders Ex Tobacco Involvement 5% Index
ETFs from the Xtrackers ESG UCITS ETF range offer integrated exposure to a major benchmark family from MSCI, combining ESG and carbon screens. The ETFs cover a range of global, regional and single country exposures, helping investors build ESG into their desired asset allocation. And the ETFs in the range are available at competitive annual fees by comparison with alternative products offered by competitors.
| Fund Name | Total Expense Ratio (per annum) | ISIN | Ticker |
| Xtrackers ESG MSCI World UCITS ETF | 0.20% | IE00BZ02LR44 | XZW0 |
| Xtrackers ESG MSCI Japan UCITS ETF | 0.20% | IE00BG36TC12 | XZMJ |
| Xtrackers ESG MSCI Europe UCITS ETF | 0.20% | IE00BFMNHK08 | XZEU |
| Xtrackers ESG MSCI USA UCITS ETF | 0.15% | IE00BFMNPS42 | XZMU |
| Xtrackers II ESG EUR Corporate Bond UCITS ETF | 0.16% | LU0484968812 | XB4F |
The value of an investment in an Xtrackers UCITS ETFs may go down as well as up and past performance is not a reliable indicator of future performance.
Investment in Xtrackers UCITS ETFs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the Xtrackers UCITS ETFs, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.
Investors should only reach an investment decision after careful consideration with their legal, tax, accounting, financial and other advisers since not all Xtrackers UCITS ETFs are suitable for all investors.
1. Website: http://www.gsi-alliance.org/
