New York-based Global X Funds has launched the Global X Conscious Companies ETF, which invests in socially conscious companies attempting to create more than an attractive bottom line for investors.
The ETF, which will trade under the ticker KRMA, tracks an index created by Irvington, N.Y.-based Concinnity Advisors that subjects companies to a three-part test to ensure that they demonstrate positive outcomes for employees, customers, communities, suppliers and shareholders.
“In a vacuum, companies exist to provide value to shareholders, their ultimate stakeholders,” Jacobs says. “Their chief task is providing the growth that investors expect,” says Jay Jacobs, Global X’s director of research. “The index adds additional stakeholders to the consideration, enlightening these companies to show that they are working to maximize their value to all these stakeholders.”
Stocks are positively screened using an academically backed process, the Multi-stakeholder Operating System. The indexers first look to published “best of” lists of companies in areas like employee welfare and environmental stewardship, cutting a universe of more than 1,400 possibilities in half.
Then companies are screened using academic and specialized data sources to try to find the “best of the best,” cutting the list of potential investments to 300 stocks.
Finally, the indexers look at the individual stocks to see if their socially responsible policies have been in place for at least three years in order to avoid firms involved in “greenwashing,” the temporary adoption of environmentally or socially sound policies to attract interest from investors.
As a result of the screening, KRMA has 114 holdings all identified as consistent socially conscious companies.
Jacobs says the idea for KRMA was introduced by an investment advisor interested in more socially responsible products for his clients.
“He knew his clients were interested in aligning their values with their investments, but he didn’t feel like the ESG investments available out there did a good enough job finding responsible companies,” Jacobs says. “A lot of those products start with negative screens where they’re excluding oil companies or gun manufacturers instead of rewarding companies that are doing good in their communities ... He came to us with this idea, helped introduce us to the index provider and brought us into this world. We of course love this strategy and enjoy working with the index provider.”
With its new ETF, Global X seeks a piece of the $6 trillion sustainable and responsible investing market.