The Bottom Line: Sustainable investing practices of new fund launches are increasingly broader and more varied while outcomes are likely more difficult to tease out.
24 sustainable funds, including mutual funds and ETFs launched in September
24 new sustainable investment funds, mutual funds and ETFs, including one ETN, were launched in September¹, adding $718.4 million in total net assets based on values as of September 30th, and expanding the number, investment type and sustainable investing approaches available to investors. Included are sixteen new ETFs, the largest number of ETF launches so far this year. At the same time, sustainable investing practices are increasingly broader and more varied, expanding beyond the integration of environmental, social and governance (ESG) practices, with some funds appending climate-oriented objectives and aligning themselves with the UN Sustainable Development Goals (SDGs). Refer to Table 1 and Table 2. In the process, potential outcomes are likely becoming more difficult for investors to tease out, especially in the absence of stepped-up manager disclosure and transparency initiatives. Adding to that is the lack of a track record and, in some cases, higher expense ratios and the small size of the newly launched funds that may not ultimately achieve sufficient scale. Considering these factors, investors are guided to exercise patience and monitor these funds for now before investing even as first time distinctive sustainable investment options are introduced.
At least four new distinctive sustainable investing options launched in September
Highlighted below are four new distinctive sustainable investing options launched in September, either in the form of an ETF or mutual fund:
- Van Eck Associates Corp. launched the first passively managed sustainable municipal bond ETF². The passively managed fund relies on a four-fold qualification approach that ranks issuers, who must support at least one qualified opportunity zone within their region, based on their backing or advancement of sustainable development as well as the promotion of positive social and environmental outcomes.
- Quadratic Capital Management LLC is sub-advising the first sustainable ETF designed to hedge against inflation. Investing largely in U.S. Treasury securities, the fund makes the case that it represents an ESG “impact” investment based on the fact that Quadratic is a registered Small/Minority Business Enterprise and a majority woman-owned firm and, thus, an investment in the fund advances certain ESG governance principles (such as increasing the representation of women in senior management and board positions in the U.S.). Even though the fund invests in Treasuries only and employs options strategies, Quadratic makes the unlikely claim that it adheres to ESG principles as reflected in the framework published by the Sustainability Accounting Standards Board (SASB) by excluding investments in issuers that are involved in and/or that derive significant revenue from, certain practices, industries or product lines.
- UBS launched the ETRAC ETN that offers investors an opportunity to leverage their exposure to the performance of the MSCI USA ESG Focused Index that pursues an ESG integration approach combined with certain exclusions. Offering 2X leverage, the ETN exposes investors to the creditworthiness of UBS AG.
- Metropolitan West Asset Management, LLC launched the first mutual fund that invests in debt securities issued by securitized vehicles and similar instruments that the investment adviser believes satisfy one or more of its positive-screening environmental, social and governance (ESG) criteria to support sustainable initiatives. A securitized vehicle typically issues debt securities backed by assets it owns such as commercial or residential mortgage loans, as well as other types of loans and assets.
16 ETFs and one ETN were launched in September 2021
16 ETFs and one ETN were launched in September, bringing to 174 the number that are classified as sustainable investment options. Even excluding the one ETN, the number of new launches in September exceeded the next highest number of new ETF launches recorded in July by a margin of 2:7 to 1. The new funds include nine actively managed funds, or 53%, versus eight actively managed ETFs. Also, five fixed income funds were launched in September, including the first of its kind passively managed sustainable municipal ETF. As noted above, the sustainable investing practices employed by the new funds are increasingly broader and more varied.
Excluding the UBS organized ETRACS 2X leveraged ETF that’s offered at 95 bps, the average expense ratio of the 16 ETFs is 41.6 bps, which drops to an average of 32.4 bps for passively managed funds and 48.7 bps for actively managed ones. In both instances, the average expense ratio is lower than that for equivalent seasoned ETFs.
The new funds added a total of $452.4 million in assets to the universe of sustainable ETFs, or an average of $26.6 million per fund. The average fund size, however, was lifted by the higher-than-average starting fund sizes launched by Janus Capital, Northern Trust and Harford Funds Management.
Seven new mutual funds were launched in September 2021, all actively managed funds
Seven actively managed mutual funds were also launched in September, excluding any new share classes. These funds added a total of $25.8 million in net assets, valued as of September 30th, with five funds reporting zero assets as of the same date. Offering multiple share classes that in some instances apply sales charges, sustainable mutual fund expense ratios average 93 bps and range from 49 bps to 151 bps. This is in line with the 93 bps average actively managed sustainable mutual fund expense ratio applicable to existing funds, but in excess of the average expense ratio charged by actively managed sustainable ETFs. Unlike the newly launched ETFs in September, their sustainable investing practices not as broad and varied as their ETF counterparts.
Table 1: Listing of ETFs and ETNs launched in September 2021 and their sustainable investing approaches
| Fund Name | Manage–ment Type | TNA (M$) | ER (bps) | Sustainable Investing Approach^ |
| ETRACS 2x Leveraged MSCI USA ESG Focus TR Index ETN due September 15, 2061 UBS AG | Passively managed | 23.4 | 95 | ESG integration combined with certain exclusions that apply, such as tobacco, controversial weapons, fossil fuel extraction and thermal coal companies. |
| FlexShares® ESG & Climate High Yield Corporate Core Index Fund Northern Trust Investments, Inc | Passively managed | 49.9 | 23 | ESG and climate-related considerations determined on the basis of (1) financially material ESG issues, (2) how a company is managing its ESG risks relative to peers, (3) corporate governance considerations and (4) an assessment of a company’s ability to mitigate the risk of transition to a lower carbon economy. In addition, certain companies are excluded from consideration, for example tobacco and weapons, to mention just a few. |
| FlexShares® ESG & Climate US Large Cap Core Index Fund | Passively managed | 2.5 | 9 | Same as above. |
| FlexShares® ESG & Climate Developed Markets ex-US Core Index Fund | Passively managed | 5 | 12 | Same as above. |
| FlexShares® ESG & Climate Investment Grade Corporate Core Index Fund | Actively managed | 49.2 | 12 | Same as above. |
| Global X Solar ETF Global X Management Company LLC. | Passively managed | 2.3 | 50 | Thematic investing combined with an exclusionary approach pursuant to which any existing or potential constituent is excluded if it does not meet the labor, human rights, environmental, and anti-corruption standards as defined by the United Nations Global Compact Principles. |
| Global X Wind Energy ETF Global X Management Company LLC. | Passively managed | 2.5 | 50 | Same as above. |
| Hartford Sustainable Income ETF Hartford Funds Management Company, LLC./Wellington Management. | Actively managed | 12.4 | 54 | Seeks to invest in companies that demonstrate a commitment to sustainable practices. These issuers include: (1) issuers that can have a positive social and/or environmental impact; (2) issuers that are leaders or demonstrating improvement in environmental, social and/or governance characteristics, and/or (3) issuers that the manager engages with on ESG characteristics in order to improve ESG disclosure and best practices. A corporate issuer’s carbon exposure is also evaluated. |
| Janus Henderson Sustainable & Impact Core Bond ETF Janus Capital Management LLC | Activelymanaged | 49.6 | 39 | Same as above. |
| Janus Henderson Net Zero Transition Resources ETF | Activelymanaged | 47.7 | 60 | Same as above. |
| Janus Henderson International Sustainable Equity ETF | Activelymanaged | 46.7 | 60 | Same as above. |
| Janus Henderson U.S. Sustainable Equity ETF | Activelymanaged | 47.8 | 55 | Same as above. |
| Nuveen ESG Dividend ETF Nuveen Fund Advisors, LLC/Teachers Advisors, LLC | Passively managed | 4.9 | 25 | ESG integration combined with certain exclusions, including alcohol production, tobacco production, nuclear power, gambling, and weapons and firearm production. Also excluded are companies that exceed certain carbon-based ownership and emissions thresholds. |
| ProShares S&P Kensho Cleantech ETF ProShare Advisors | Passively managed | 4.1 | 58 | Thematic investing. |
| VanEck HIP Sustainable Muni ETF Van Eck Associates Corp. | Actively managed | 12.4 | 24 | Four-fold qualification approach that ranking issuers that support or advance sustainable development as well as promote positive social and environmental outcomes based on their alignment with the United Nations Sustainable Development Goals 9, 11 and 12, ESG considerations and response to climate threat and resilience. Issuers must support at least one qualified opportunity zone within their region. |
Notes of Explanation: ^ This is an abbreviated description of the fund’s sustainable investing approach. For additional information, refer to the fund’s prospectus. Investment manager name is only listed once. ER=Expense ratio. TNA Source: Morningstar Direct, otherwise, fund documents and information compiled by Sustainable Research and Analysis.
Table 2: Listing of mutual funds launched in September 2021 and their sustainable investing approaches
| Fund Name | Management Type | TNA (M$) | ER (bps) | Sustainable Investing Approach^ |
| BlackRock Infrastructure Sustainable Opportunities Fund BlackRock Advisors, LLC and BlackRock International Limited | Actively managed | 0.0 | 95-125 | Investible universe determined on the basis of exclusionary criteria including but not limited to tobacco, controversial weapons, environmental and social considerations to mention just a few, alignment with at least one of several identified UN SDGs and capacity to manage ESG risks and opportunities. |
| Boston Common ESG Impact Emerging Markets Fund Boston Common Asset Management LLC | Actively managed | 0.8 | 99 | ESG integration combined with a broad range of exclusionary criteria and active engagement with select portfolio companies through a variety of channels. |
| Brown Advisory Sustainable Small-Cap Core Brown Advisory LLC | Actively managed | 0.0 | 94-109 | ESG integration while also leveraging engagement with companies when appropriate with company management teams as of the firm’s due diligence process. Fund expects to have minimal exposure to companies exposed to controversial business activities. |
| Hartford Schroders Diversified Emerging Markets Fund Hartford Funds Management Company LLC/Schroder Investment Management North America Inc. and Schroder Investment Management North America Limited | Actively managed | 0.0 | 89 | ESG integration, including companies that demonstrate sound or improving sustainability practices based on the firm’s engagement initiatives. The fund also employs an exclusionary list based on certain industries and product lines. |
| Mainstay ESG Multi-Asset Allocation Fund New York life Investment Management LLC | Actively managed | 0.0 | 78-138 | Fund invests in underlying ETFs that primarily invest in companies or issuers that either exhibit positive ESG characteristics and/or meet certain ESG criteria. A broad range of ESG investment strategies may be employed, varying by asset class and by strategy. This may include, but is not limited to: (i) approaches that employ exclusionary screens based on certain sustainability or values-related criteria; (ii) approaches that select investments based on their ESG characteristics; or (iii) approaches that integrate the analysis of ESG factors to assess the risk-reward profile of securities. |
| MetWest ESG Securitized Fund Metropolitan West Asset Management LLC | Actively managed | 0.0 | 49-70 | Seeking to satisfy one or more of its positive-screening environmental, social and governance criteria to support sustainable initiatives as applied to the underlying security collateral and issuer program. Up to 20% of assets may not be screened for ESG considerations. |
| PGIM ESG Total Return Fund PGIM Investments LLC/PGIM Fixed Income and PGIM Limited | Actively managed | 25 | 49-151 | In addition to requiring the issuer to meet a minimum threshold score based on ESG factors considered by the manager, the fund employs and exclusionary approach, avoiding companies that (i) have exposure to controversial weapons and those with revenue above a certain threshold (as determined by the subadviser) from conventional weapons, tobacco, thermal coal generation and extraction, oil sands extraction, artic oil and gas exploration and gambling activities; (ii) issuers that have carbon emissions activities above a certain emission intensity as determined by the subadviser; and (iii) issuers that are non-compliant with UN Global Compact principles. The principles of the UN Global Compact represent a set of values that the UN believes responsible businesses should incorporate into their operations in order to meet fundamental responsibilities in the areas of human rights, labor, environment and anti-corruption. |
Notes of Explanation: ^ This is an abbreviated description of the fund’s sustainable investing approach. For additional information, refer to the fund’s prospectus. Investment manager name is only listed once. ER=Expense ratio listed as the range for the multiple share classes offered by the fund. TNA Source: Morningstar Direct, otherwise, fund documents and information compiled by Sustainable Research and Analysis.
¹ Based on Morningstar’s classification framework. ² Based on Morningstar’s classification framework for sustainable funds, the VanEck HIP Sustainable Muni ETF is the first of its kind municipal ETF. Based on research conducted by Sustainable Research and Analysis, JPMorgan offers two actively managed sustainable municipal ETFs. These funds consider certain environmental, social and governance factors that could have a material negative or positive impact on the risk profiles of certain securities in which the fund may invest.
