It was a sign of the times. Way back in 1971, Pax World was started by two United Methodist Ministers who wanted to create a mutual fund that didn’t invest in weapons manufacturers because of the Vietnam War. From that beginning, an entire investment theme was born and Pax World went on to create 11 mutual funds that currently have $24 billion in assets under management.
Today, Pax World has entered the ETF world with the launch of its first fund: ESG Shares North America Sustainability Index (NYSEArca: NASI). The fund tracks the FTSE KLD North America Sustainability Index, a sector-neutral index of companies domiciled in North America. Two more funds will follow in the next week or so: ESG Shares FTSE Environmental Technologies (ET50) (NYSEArca: ETFY) and ESG Shares Europe Asia Pacific Sustainability Index (NYSEArca: EAPS).
The “ESS” in the funds’ names stands for environment, social and governance, three criteria on which all companies included in each fund are evaluated, says Joe Keefe, Pax World’s president and CEO.
Factors considered under each area include:
- Environmental: emissions, waste, recycling, steps taken to mitigate climate change, efforts to use energy more efficiently.
- Social: how employees are treated, supply chain practices, discrimination, gender diversity in upper management, how the company operates in its community.
- Governance: business ethics, board structure, diversity, whether the board truly represents the shareholders or is just a rubber stamp for management.
“We think all these criteria are issues that can be very important to a company’s bottom line and important to its stock price,” Keefe says. [Water ETFs: The New Gold.]
While many so-called “socially responsible ETFs” screen out certain companies or industries, such as tobacco, gambling, alcohol and the like, Keefe doesn’t define sustainable investing by what it’s excluding, but by what it’s including, preferring to take into account those environmental, social and governance factors into their analysis and decision-making.
For that reason, Keefe stresses that there’s a difference between “socially responsible” and “sustainable” investing. The companies that Pax World’s funds include “tend to have stronger profiles, tend to be better managed, forward-thinking, anticipating and mitigating risk and focused on the long-term,” he says. [Your Guide to Green ETFs.]
As both a mutual fund provider and now an ETF provider, Keefe sees both types of investments as complementary. “We would like to offer both mutual funds and ETFs and both actively managed strategies and passive strategies,” he says. “An argument can be made for both approaches, and the more choices for investors, the better.”
As their line of ETFs grow, Pax World plans to stay solely focused on the sustainable investing approach. [Alternative Energy ETFs: Ready, Steady, Grow?]
“We helped to build this industry and we’re just as dedicated to sustainable investing as a value shop would be to value investing. We believe it’s a smarter investing approach and it serves society well.”
For more stories about socially responsible and sustainable investing, visit this page.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.