Building A Socially Responsible Smart Beta ETF

March 28, 2017

ESG Methodology & Ranking Criteria (by AUM)

Ticker Fund ESG Methodology ESG Ranking Criteria
ESGL Oppenheimer ESG Revenue ETF Sustainalytics  ESG Scoring Top 50% categories
ESGF Oppenheimer Global ESG Revenue ETF MSCI ESG Research Ratings Top 50% rank
ISMD Inspire Small/Mid Cap Impact ETF Inspire Impact Score Biblical Values and positive impact
NUSC NuShares ESG Small-Cap ETF TIAA ESG Methodology  ESG Leaders and Carbon Emissions Screens
ESGN Columbia Sustainable International Equity Income ETF MSCI ESG IVA Methodologie No lower than BB
NULG NuShares ESG Large-Cap Growth ETF TIAA ESG Methodology  ESG Leaders and Carbon Emissions Screens
NUMG NuShares ESG Mid-Cap Growth ETF TIAA ESG Methodology  ESG Leaders and Carbon Emissions Screens
NULV NuShares ESG Large-Cap Value ETF TIAA ESG Methodology  ESG Leaders and Carbon Emissions Screens
NUMV NuShares ESG Mid-Cap Value ETF TIAA ESG Methodology  ESG Leaders and Carbon Emissions Screens
ESGS Columbia Sustainable U.S. Equity Income ETF MSCI ESG IVA Methodology No lower than BB
ESGW Columbia Sustainable Global Equity Income ETF MSCI ESG IVA Methodology No lower than BB

 

Most of these funds use a proprietary ESG ratings. Usually, these methodologies rank companies based on how well each company manages its environmental, social and corporate governance (ESG) practices.

For example, MSCI’s model makes adjustments depending on each industry ESG risk exposure and how well a company’s management mitigates or takes advantage of each ESG risk:

  • Environmental risks include themes such as carbon emissions, natural resources usage, pollution and waste management.
  • Social risks consist of themes around labor health, safety and human capital development, product life liability, and stakeholders conduct.
  • Corporate governance risks embody themes such as board structure, pay, business ethics and transparency.

Principle Value Screening

Some indexes also exclude companies from their investment universe to better align their products to their principle values.

As an example, the Inspire Small/Mid Cap Impact ETF (ISMD) aims to select companies associated with biblical values, thus excluding companies with any degree of participation in abortion, gambling, alcohol, pornography, LGBT lifestyle, or doing business in terrorist-sponsoring countries.

In other cases, such as NuShares’ funds, their indexes exclude any company that owns fossil fuel reserves, as part of their carbon-screening criteria.

 

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