In the world of exchange traded funds (ETFs), socially responsible investing (SRI) options come in many forms. The Impact Shares NAACP Minority Empowerment ETF (NYSEArca: NACP), which debuted last July, is the first ETF dedicated to promoting racial equality among corporations.

NACP follows the Morningstar Minority Empowerment Index. That benchmark “provides exposure to U.S. companies that stand out for their commitment to racial and ethnic diversity,” according to Morningstar. “Commitment is measured through policies, programs, and performance, as well as societal impact. Companies are judged not only on the basis of their own workforces and boards of directors, but also on their supply chains and community interactions.”

NACP was launched via a partnership between the NAACP and Dallas-based Impact Shares. Impact Shares is the first non-profit ETF issuer. NACP holds 220 stocks and is up 12% this year.

“The ETF  was created using NAACP’s corporate scorecard model to hold corporations accountable through a market-driven approach.  The NAACP does not manage the fund, nor do we score or rank the companies. We contributed the criteria to score and rank companies on the S&P 500 based on factors including board and supplier diversity and community involvement,” according to the NAACP.

NACP uses 10 screens in its stock selection process, including Board Diversity. This indicator provides an assessment of the diversity of a company’s board of directors. Diversity of background can provide fresh perspectives in the boardroom and lead to better board decision-making.

Another filter is discrimination policy. This indicator provides an assessment of the quality of a company’s policy to eliminate discrimination, including racial discrimination, and ensure equal opportunity.

Socially responsible investing principles help companies and issuers innovate, attract new capital, operate more efficiently and manage risk by engaging on social issues. Additionally, responsible investing can also impact the world, driving positive environmental and social impact as well as accelerating investment demand.

As the general populace ages, the changing face of investors begins to unmask itself. An interesting aspect of the study is the increase in ETF investor interest from millennials and Generation X, as well as their increased focus on SRI/ESG. In addition, what the study found is that women have a higher inclination to SRI investing.

More education about SRI strategies is seen as paramount in the effort to bring investors to these funds, including NACP.

For more on core ETF strategies, please visit our Core ETF Channel.

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.

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