Goldman Sachs could be the next well-known issuer of ETFs to enter the competition for values-based ETFs.
The company’s ETF arm, Goldman Sachs Asset Management (GSAM) has filed plans to launch an ETF based on an index developed by JUST Capital Foundation that tracks companies engaged in just business practices. Investing based on environmental, social and governance (ESG) principles is a growing part of the booming smart beta ETF space.
“With socially responsible investing — also known as ESG for its focus on a company’s environmental, social or governance policies — surging to more than $23 trillion globally, ETF issuers are looking to get a piece of the action. At least nine funds started this year offer exposure to values-based strategies, but assets have disappointed to date. ESG-related ETFs house less than $6 billion in the U.S., or 0.2 percent of the market, data compiled by Bloomberg show,” reports Rachel Evans for Bloomberg.
The new ETF will be known as the Goldman Sachs JUST U.S. Large Cap Equity ETF and intensify the competition between GSAM and established ESG ETF players, including “BlackRock Inc., the largest ETF issuer in the U.S., State Street Corp., Nuveen Investments and OppenheimerFunds Inc., among others,” according to Bloomberg.
The sustainable investing theme has quickly gained momentum. As of 2016, ESG-focused strategies held $8.1 trillion of the $40.3 trillion in professionally managed assets in the U.S. Of those ESG assets, $2.6 trillion were invested in retail-focused funds, compared to $1.01 trillion in 2012 and $202 billion in 2007.
Currently, there are about 500 ESG-related mutual funds and ETFs with $1.7 trillion in assets under management.
For instance, the Oppenheimer ESG Revenue ETF (NYSEArca: ESGL) and Oppenheimer Global ESG Revenue ETF (NYSEArca: ESGF) are two relatively new options in the space.
ESGL targets broad U.S. large-caps through the S&P 500 but screens through Sustainalyics’ proprietary scoring system that focuses on those with positive ESG attributes and employs a revenue-weighted methodology.
ESG investments try to deliver returns while monitoring the long-term impact of a company’s business practices on society, the environment and performance of the business.
Incorporation of non-financial data over ESG practices can provide deeper insight into company performance, compared to traditional fundamental analysis. A number of third-party firms are now providing ESG metrics from companies and comprehensive ESG scoring on a number of firms.
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