SDG Investing with Exchange Traded Funds

In the 2030 Agenda for Sustainable Development^[1], the United Nations (UN) has set out an action plan that includes the most important global issues for a more sustainable future. These range from fighting poverty and hunger to combating climate change and creating a peaceful and just society. To this end, the UN defined 17 goals to address common global challenges: the Sustainable Development Goals (SDGs).  Learn more about the UN Sustainable Development Goals

Discover all Xtrackers MSCI SDG UCITS ETFs

Implementing global SDGs together

The UN Sustainable Development Goals include 169 targets and 231 indicators to measure progress towards the goals. Like the 2030 Agenda, the SDGs cover a wide range of sustainability issues. Some of the accompanying targets are very specific and quantifiable, while others are formulated more broadly and qualitatively. Companies can contribute to the achievement of the SDGs by producing products or providing services that contribute to the achievement of one or more of the 17 goals as well as by aligning their operations, for example with respect to labour rights and health and safety measures. For each SDG, more specific sub-targets have been defined. While some targets are aimed at governmental policy making, our experts estimate that companies can contribute to around half of these targets through their products and services as well as corporate behavior (source: DWS calculations).

Exposure to single and multi-theme SDGs

Xtrackers provides the world’s first product range offering investors granular (i.e. single theme SDGs) access to companies associated with a positive contribution to SDGs. Investors can choose between products that relate to multiple SDGs^[3] or various single SDGs, which are combined with a thematic approach. In addition all company stocks in the equity funds are subject to an ESG Screened Methodology, including an ESG exclusion criteria.

Xtrackers single-theme SDGs: Your investment solutions

Xtrackers ETFs track indices which combine MSCI SDG Alignment (75% index weight) with the MSCI thematic engine (25% index weight). Single-theme solutions to drive SDG alignment might be:

A bottom-up stock selection

The selection of company stocks in Xtrackers SDG ETFs is based on the MSCI ACWI IMI universe comprising of small, mid and large capitalisation stocks from global markets deemed investible by MSCI. The selection combines ESG data, thematic revenue and SDG alignment data from the index provider MSCI. The following criteria are taken into account:

• companies with >50% SDG aligned revenues towards the targeted SDG and companies that have >50% revenue aligned with the relevant theme are eligible for single SDG Xtrackers ETFs
• only companies with >50% SDG aligned revenues towards all 17 SDGs are eligible for Multi-theme SDG Xtrackers ETF
• companies are weighted according to their relevance vis-à-vis the SDG/theme, with a priority given to companies with higher SDG relevance
• Companies misaligned with any of the 17 SDG goals are excluded

Investing with SDG-aligned indexing solutions

SDG investments can be understood as a form of thematic investing. The fully systematic, methodology powering the MSCI SDG indices provides thematic exposure to companies relevant to achieving the Sustainable Development Goals. The focus is on directing capital - towards companies that are well positioned to positively contribute to the current efforts by the society towards achieving those Sustainable Development Goals.

SDGs: MSCI Sustainable Impact Solutions Metrics

Xtrackers SDG ETFs use the MSCI methodology that links the SDGs to concrete and actionable sub-themes by using SDG aligned revenue metrics. The themes are divided into social categories and environmental categories. An SDG target can achieve environmental and/or social characteristics from one or more sub-themes.

Examples for Sustainable Development Goals

Are SDG Investments sustainable?

Xtrackers SDG ETFs do not have sustainable investment as their objective but do promote environmental and/or social characteristics and therefore qualify as a financial product subject to the disclosure requirements of Article 8(1) of SFDR. This is what you should know about the companies invested in by such Xtrackers SDG ETFs:

Very few companies have their business model entirely based on contributing to the SDG s, but certain companies have a majority of their activities aligned. Xtrackers SDG ETFs aim to focus on these companies.

The indices also aim to exclude companies with poor sustainability metrics or companies whose behaviour is harmful to the achievement of the SDGs, even if some of their activities could be considered aligned with the achievement of these goals.

Sustainable Investment metrics (SI) as per the EU Sustainable Finance Disclosure Regulation (SFDR) are useful to assess the share of sustainable investments achieved by the ETF. Xtrackers SDG ETFs disclose under Art. 8 of SFDR.

SDG Investments: Opportunities & risks

Thematic investing is becoming increasingly important for investors and can be a useful way to invest directly in companies that are in line with certain themes. Investors should note that the Xtrackers ETFs are not capital protected, the value of your investment may go down as well as up. Investor capital may be at risk up to a total loss.

The table below provides an overview of the risk-reward profile that can arise for investors.