Update 7/02/2018 - We've updated this post with Betashares new Australian Sustainability Leaders ETF (FAIR) which was recently launched.
Update 8/03/2017 - We've updated this post with Betashares new Global Sustainability Leaders ETF (ETHI) which was recently launched.
You may have read Fairfax Media’s somewhat sensational article on the weekend about Prime Minister Malcolm Turnbull being invested in big Tobacco companies, even after publicly declaring Tobacco as the single most preventable cause of bad health in Australia. Anyone who read more than the first couple of paragraphs would have seen that his exposure to Tobacco companies was through some global ETFs including iShares MSCI Japan ETF (IJP) and Vanguard FTSE Europe Shares ETF (VEQ).
As an investor it’s hard not to feel a little sorry for Mr Turnbull no matter which end of the political spectrum you lie. Last time it was attacks over his Cayman Islands investments, which turned out to be units in popular Hedge Fund Bronte Capital who held entities in the Caymans. This time it is accusations of supporting big tobacco when a few tobacco companies make up part of the extremely broad indexes he is invested in. Nevertheless, we thought this was a good opportunity to point out to Mr Turnbull’s Financial Adviser the ETFs which are classed as ‘ethical ETFs’ and deliberately avoid tobacco in their portfolios.
One of the biggest problems with funds designed to be ethical in nature, is every investor’s ethical boundaries are likely to differ. What’s unethical to one investor may be perfectly ethical to another. Tobacco, weapons manufacturers, alcohol, gambling, oil, mining, Woolworths because they sell cigarettes… where do you draw the line? The Responsible Investment Association Australia’s (RIAA) Responsible Investment Benchmark Report 2016 listed tobacco, alcohol, weapons and gambling industries as the most likely to be excluded from portfolios for ethical reasons.
UBS are the main manager offering Ethically tilted ETFs on the ASX, launched in early 2015, they offer six funds with an ethical bias. The UBS companies exclude companies involved in Tobacco or the production of controversial weapons, meeting two of the popular criteria supported by the RIAA and perfect for Mr Turnbull. The issue with only excluding tobacco and weapons manufaturing is there are very few companies involved in this activity, for example, in Australia none of these companies make up the ASX 200, so the UBS Australian ETF is effectively just a regular market cap weighted ETF.
Russell Investments also offers a high dividend fund with a weighting to companies that demonstrate positive environmental, social and governance characteristics. Russell's index is broader reaching than UBS, with a number of mining companies excluded because of environmental concerns and companies with more than 10% exposure to gambling.
Betashares Global Sustainability ETF (ETHI) has a global focus with a positive screener meaning companies must be 'climate change leaders' to make the list, whilst also excluding companies involved in things like fossil fuels, gambling, tobacco, junk food and weapons. Betashares also has an Australian focused version of the fund, FAIR which has the same negative screeners as ETHI, but with slightly different positieve screeners. The funds on offer are listed below:
|Ticker||Name||Management Fee||Market Cap|
|UBA||UBS IQ MSCI Australia Ethical ETF||0.17% pa||$180.0m|
|UBE||UBS IQ MSCI Europe Ethical ETF||0.40% pa||$10.6m|
|UBJ||UBS IQ MSCI Japan Ethical ETF||0.40% pa||$4.4m|
|UBP||UBS IQ MSCI Asia APREX 50 Ethical ETF||0.45% pa||$8.9m|
|UBU||UBS IQ MSCI USA Ethical ETF||0.20% pa||$6.2m|
|UBW||UBS IQ MSCI World Ex Australia ETF||0.35% pa||$24.8m|
|RARI||Russell Australian Responsible Investment ETF||0.45% pa||$64.4m|
|ETHI||Betashares Global Sustainability Leaders ETF||0.59% pa||$121.9m|
|FAIR||Betashares Australian Sustainability Leaders ETF||0.49% pa||$50.8m|
Of course the above UBS funds suit if excluding tobacco and controversial weapons meet your ethical investing criteria, however as we mentioned this may mean simply investing in the broad index if that index has very little exposure to either industry. If you would prefer to broaden the net to industries like alcohol, gambling and environmental issues, RARI may be more suited to you, but only for exposure to Australian companies, and it also has higher management fees. FAIR adds a positive screener to ensure it includes higher weighting to 'sustainability leaders'. If you wish to cast your ethical net more broadly outside of Australia and add the positive environmental focus screener, ETHI may be the ETF you are seeking.
This article is general in nature and should not be considered financial advice. We recommend investors seek professional financial advice before investing.