Head of ETFs at LGIM Howie Li
Legal & General Investment Management (LGIM) has launched a European equity ETF, which excludes stocks using the expertise of an independent sustainability advisory committee.
L&G Europe Equity (Responsible Exclusions), which has been launched in partnership with Foxberry and charges a total expense ratio of 0.16%, has already raised €200m (£177m) from Finnish pensions insurer Varma in advance of the launch.
Its launch will also see the Foxberry Sustainability Consensus Europe Total Return Index launched, via LGIM’s partnership with the London-based index provider.
The London Stock Exchange-listed UCITS ETF will look to minimise exposure to those likely to face longer-term issues such as more stringent regulation, consumer boycotts or environmental hazards.
Using a dynamic approach, it will exclude companies that become less responsible and track companies that become more responsible, which may otherwise be missed by static or sector-based exclusion.
LGIM will also engage with the boards of held companies to promote best practices, particularly those on the firm’s “watch list” of stocks at risk of exclusion.
The ETF’s sustainable advisory committee, which includes ESG experts Tomas Franzen and Gustaf Hagerud who helped to establish the responsible investing frameworks of Swedish pension funds AP2 and AP3, will provide insight into corporate responsibility and ESG investing.
It will research market developments to monitor companies to identify those engaged in irresponsible behaviour across traditional industry classifications. The committee will also use a collaborative approach to allow for investors and interested parties the chance to review summary findings and contribute insights and suggestions to the process.
Head of ETFs at LGIM Howie Li (pictured) said the launch comes amid investor appetite for “a source of consensus on where capital should be allocated, but also where it should not be”.
He added that existing comparable products use “a variety of different exclusion lists”, which are “often static or constrained only to certain industries that captured the perspective at a single point in time”.
Li said: “Investor expectations and awareness of new issues are constantly evolving and this has highlighted a need for integrating a dynamic investor and expert-led approach to help navigate through the changing landscape.
“By bringing experts together to collectively evaluate companies, their actions and behaviours on an on-going basis, this ETF is designed to provide the investment community with a dynamic and transparent exclusion approach for their market cap index investment but also provides them with the ability to provide suggestions and contribute to the committee’s thought leadership.”