ESG investing

ESG strategies for socially conscious investors

Not all ESG strategies are the same. Most ESG funds apply one of the following:

ESG integration

Regularly including ESG factors alongside the traditional investment analysis performed by active fund managers. This strategy doesn't require the fund to rule out any company, industry, or country simply because it's involved in a business activity that may be objectionable to some. Example: The portfolio manager chooses to include the stock of a well-performing energy company that is thoughtfully navigating the transition from fossil fuels to sustainable resources.
 

Portfolio screening

Exclusionary. Excluding or underweighting certain sectors, countries, and securities. Example: Ruling out companies that manufacture or sell tobacco or guns.

Inclusionary. Investing in sectors or companies with higher ESG ratings than their industry peers or other investment opportunities. Example: A mining company that's inherently risky environmentally but ranks high on managing the environmental impacts of its products and services.

Advocacy

Using resources to positively influence corporate behavior on ESG-related issues. Examples: Fundraising for charitable organizations or donating to the organizations to impact a specific cause, public activism, encouraging action at a local level, and directly communicating with a company or policymaker.
 

Impact investing

Targeting investments, often made in private markets, to generate positive societal or environmental impact and a financial return. Example: Investing in companies developing renewable energy sources.

What's excluded

Excludes companies that:

• Produce alcohol, tobacco, gambling, and adult entertainment.
• Produce civilian, controversial, and conventional weapons.
• Produce nuclear power.
• Do not meet certain diversity criteria.
• Have violations of labor rights, human rights, anti-corruption, and environmental standards defined by UN Global Compact Principles.*
• Own proved or probable reserves in fossil fuels such as coal, oil, or gas.**

*For more information, go to unglobalcompact.org/what-is-gc/mission/principles

**This also excludes any company that FTSE determines has a primary business activity in: (a) the exploration and drilling for, as well as producing, refining, and supplying, oil and gas products, (b) the supply of equipment and services to oil fields and offshore platforms, (c) the operations of pipelines carrying oil, gas, or other forms of fuel, (d) integrated oil and gas companies that provide a combination of services listed in (a)-(c) above, including the refining and marketing of oil and gas products, or (e) the exploration for or mining of coal.

What's excluded

Excludes companies that*:

• Derive any revenue from involvement in controversial weapons, civilian firearms, nuclear power, or fossil fuels.
• Derive any revenue from the production of tobacco, cannabis, or conventional military weapons, or greater than 5% revenue from supplying or retailing these products.
• Derive greater than 5% revenue from the production of alcohol, gambling, or adult entertainment, or greater than 10% revenue from supplying or retailing these products.
• Do not meet certain board and workforce diversity criteria.
• Have violations of labor rights, human rights, anticorruption, or environmental standards as defined by the U.N. Global Compact principles.**

*See the Security Selection section in the ETF’s prospectus for additional information on index construction.

**For more information, see United Nations Global Compact, 2020. The Ten Principles of the UN Global Compact. Accessed December 2, 2020, at unglobalcompact.org/what-is-gc/mission/principles.

What's excluded

Excludes companies that*:

• Derive any revenue from involvement in controversial weapons, civilian firearms, nuclear power, or fossil fuels.
• Derive any revenue from the production of tobacco or conventional military weapons, or greater than 5% revenue from supplying or retailing these products.
• Derive greater than 5% revenue from the production of alcohol, gambling, or adult entertainment, or greater than 10% revenue from supplying or retailing these products.
• Do not meet certain board and workforce diversity criteria.
• Have violations of labor rights, human rights, anticorruption, or environmental standards as defined by the U.N. Global Compact principles.**

*See the Security Selection section in the ETF’s prospectus for additional information on index construction.

**For more information, see United Nations Global Compact, 2020. The Ten Principles of the UN Global Compact. Accessed December 2, 2020, at unglobalcompact.org/what-is-gc/mission/principles.