Goldman Debuts 'ActiveBeta' ESG ETF

Editor's Note: This story's headline originally called GPAL an active ETF. It is a passive ETF following Goldman Sachs' ActiveBeta strategy.

Goldman Sachs is using its “ActiveBeta” strategy for a new ETF that aims to apply a level of carbon reduction goals in line with the Paris Climate Accords.

The Goldman Sachs ActiveBeta Paris-Aligned Climate U.S. Large Cap Equity ETF (GPAL) debuted on the Cboe Global Markets on Wednesday with an expense ratio of 0.20%.

The ActiveBeta strategy is somewhat of a misnomer, as the fund actually follows an in-house index of large cap U.S. equities that’s rebalanced each quarter. Goldman strips any companies that violate the European Union’s target of limiting global average temperatures under 2 degrees Celsius from pre-industrial levels, and cuts out companies violating the UN Global Compact.

While there are plenty of ESG and low-carbon ETFs on the U.S. market, Paris-aligned indexes aren’t as common stateside. According to data from ETF.com’s sister site ETF Stream, there are 30 funds trading on exchanges within the EU with the phrase “Paris aligned” in their names.

“As we think about launching this product in the U.S., and as we talk to U.S. investors, I think they like the fact that this is broadly accepted in Europe,” said Michael Crinieri, Goldman’s global head of ETFs. “They like that prescriptive framework.”

The Xtrackers Emerging Markets Carbon Reduction and Climate Improvers ETF (EMCR) is one of the few other ETFs in the U.S. that explicitly align with the Paris-aligned benchmark standard.

Goldman’s strategy then rates the remaining companies based on value, momentum, quality and low volatility scores for overall weighting scores, and then alters weights to produce an index that has a 50% reduction in greenhouse gas emission intensity compared to the combined intensity of the 502 firms within the Solactive US Large Cap Index. The fund also has to cut the portfolio’s carbon emissions intensity by 7% year-over-year on an ongoing basis to stay in alignment with the Paris Accords, says Barbara Mueller, a vice president at Goldman.

Goldman has seven preexisting ETFs using ActiveBeta, with four of them outperforming their benchmarks year-to-date, according to ETF.com data.

GPAL is the second attempt at an ESG-colored fund after the company launched the Goldman Sachs Future Planet Equity ETF (GSFP) in mid-July. That fund has garnered $106.8 million in assets under management, but has returned just 1.57% since launch.

Contact Dan Mika at [email protected], and follow him on Twitter