Goldman’s New ETF Take On ESG

June 13, 2018

Goldman Sachs rolled out its first environmental-, social- and governance-focused ETF today in partnership with former hedge fund manager Paul Tudor Jones’ foundation Just Capital, which includes Arianna Huffington and Deepak Chopra among its board members. The Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST) bases its investments on a methodology developed by the foundation.

JUST comes with an expense ratio of 0.20% and lists on the NYSE Arca.

Evolving Methodology

The index, developed by Just Capital, pulls its components from the Russell 1000, targeting those firms that it determines engage in “just business behavior,” according to the prospectus. The goal is to encourage companies to make positive changes.

Every year the index provider issues a survey to determine the seven business behaviors that are most important to investors from that perspective and then evaluates and ranks the companies in its selection universe according to quantitative criteria related to those issues, selecting the top 50% of companies by market capitalization.

Companies are evaluated on a sector-by-sector basis relative to their peers, resulting in a sector-neutral index, according to Tony Kelly, head of product development for Goldman’s ETF business.

Key Points Of Interest

The current areas of concern for investors regarding companies are as follows: how they treat their workers, their customers, the communities they interact with, the environment, their shareholders; their commitment to making quality and beneficial products; and job creation. Companies included in the index are weighted by market capitalization. As of May of this year, the index had 437 components ranging in size from as small as $1.8 billion and as large as $927 billion.

The fund is unique in that its methodology has the capability of evolving from year to year as investor concerns shift, unlike other ESG methodologies, which are static. As of its last reconstitution, in December 2017, the index had a turnover of roughly 21.5%.

Although this is Goldman’s first ESG fund, it’s not the company’s first ESG product or strategy. It manages about $85 billion in direct or advised assets in the ESG space, mainly on the institutional side. ESG is actually the most common topic of product development conversations with clients, Kelly notes. Many of them had found other methodologies to be opaque or too narrowly focused on one issue. The Just methodology addresses this through its transparency and the way it selects the ESG issues to prioritize.

Contact Heather Bell at [email protected]

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