In this blog post, we will highlight a socially responsible exchange-traded fund (ETF). Change Finance offers the U.S. Large Cap Fossil Fuel Free ETF (CHGX). CHGX is an ETF that is truly socially responsible.
Exchange-Traded Funds
The first US exchange-traded funds (ETF) launched in 1993. Since then, ETFs have become one of the most popular investment vehicles for both institutional and individual investors. In 2019, U.S.-based exchange-traded funds have racked up a record $4 trillion in assets under management (AUM). The ETF market continues to grow. In 2030, the ETF market will hit $50 trillion in AUM The growth is fueled by ETFs offering attractive tax efficiency, low-cost diversification, liquidity, and transparency.
Socially Responsible ETFs
Socially responsible and environmental, social, and governance (ESG) ETFs have seen recent astronomical growth. In Aug 2020, there are 112 Socially Responsible ETFs traded in the U.S. markets with $41.76 billion in AUM. Socially Responsible/ESG ETFs vary greatly in how “socially responsible” their holdings are. A number of ESG funds include Exxon Mobil, the fourth-largest emitter of greenhouse gases, in their portfolio. BlackRock, one of the leading voices on ESG investing, has been accused of double standards. Larry Fink, BlackRock’s CEO, has strongly voiced the need for climate action but the company’s voting record on climate shareholder resolutions does not always reflect this need.
CHGX, an ETF for True ESG Believers
Change Finance U.S. Large Cap Fossil Fuel Free ETF (CHGX) is one ETF that lives up to its socially responsible claims. Lara Crigger of ETF.com states of CHGX “It’s probably one of, if not the, most stringent ESG ETFs left on the market—an ETF made by true ESG believers, for true ESG believers.”
Yield Positive spoke to Andrew Rodriguez, Change Finance’s CEO and Chief Investment Officer. Andrew started his career as a pastor. However, he came to the conclusion that there was an alternative career that would have a larger impact on the world – sustainable finance. CHGX was launched in 2017 by Andrew and a team that includes Hunter Lovins, renowned author and champion of sustainable development, as the Chief Impact Officer.
CHGX Methodology
To create CHGX, Change Finance analyzes the 1,000 largest U.S.-listed common stocks and REITs (Real Estate Investment Trusts). Change then ranks the stocks and REITs by ESG scores. Change uses standard ESG metrics with 125 more stringent socially responsible metrics layered on top. The 125 metrics include sex trafficking, renewable fuel at transport companies, nitrous oxide emissions, sulfur dioxide emissions, and GHG emissions. Change Finance eliminates companies that produce or process fossil fuels, as well as utilities that use fossil fuels. This results in CHGX having one of the lowest carbon footprints of any large fund. CHGX also has 0% weapons exposure. It ranks in the top 25% for gender equality rank.
Stocks and REITs included in CHGX are the 100 most socially responsible. Andrew stated: “We go above and beyond typical ESG metrics to ensure that our portfolio is actually socially responsible. If a company does not report on their metrics, we see it as a fail on that metric. Companies need to do well on all of the metrics or they won’t be included in the CHGX portfolio.”
The Whole Package
Change Finance prides itself on living by its socially responsible values. Having strict and expansive ESG requirements is only one element of the package. ESG scores are reassessed quarterly, ensuring that companies that make improvements can be rewarded. This also ensures that companies that take a turn for the worse are penalized.
CHGX also stands out in the socially responsible ESG ETF world because it is the only ETF (of which Change Finance is aware) which does proactive stakeholder engagement. One example of this engagement is a petition which demands that companies report median gender and racial pay data across their workforce.
Financial Overview
This blog post focuses on the social responsibility of CHGX. However, we want to briefly mention the financial indicators. Fund details can be seen below.
CHGX has an expense ratio of 0.49%. This is slightly higher than the average ETF expense ratio of 0.44%. The higher fees come from the extra work that Change Finance does to ensure that CHGX is truly socially responsible.
Pros/Cons Summary
Pros: One of the more stringent socially responsible ETFs, does shareholder activism to push holding companies to be more socially responsible
Cons: Higher than average ETF expense fees
Disclaimer: For educational purposes only. We do not provide investment, financial planning, legal or tax advice.