Deladerrière noted the fashion industry is very unsustainable in the way it sources materials such as cotton and plastic. And also because some fashion items are thrown out after just a few uses. Clothes recycling can help reduce waste, and one of the leaders in this nascent field is fund holding Re:NewCell AB, a Swedish company that bills itself as a "sustaintech" operation with a unique textile recycling technology.
“Its technology is similar to paper recycling technology,” Deladerrière said.
Elsewhere, the circular economy theme targets companies involved with single-use substitution and waste management, while the fund's water sustainability component deals with water treatment, water distribution and desalination.
The fund’s top five holdings are Enel SpA, an Italian electric and gas company that’s making a big push into green energy; Ecolab Inc., an American water treatment company; Japanese air conditioner maker Daikin Industries Ltd., which builds systems using refrigerants designed to mitigate global warming; Xylem Inc., an American water technology provider; and Ball Corp., an American maker of glass containers.
Inflection Point
GSAM posits that the world is at an inflection point that’s driving what it calls a global sustainability revolution. Governments are making commitments to be carbon neutral. Certain large, influential corporations are making pledges ranging from buying renewable energy to ordering electric vehicles. And many consumers say they’re committed to the notion of a sustainable planet and are willing to pay up for products and services aligned with that, according to Katie Koch.
GSAM’s new ETF has an expense ratio of 0.75%. It joins an increasingly crowded market for funds trading under the banner of sustainable or environmental, social and governance or socially responsible investing.
The ESG movement long ago shifted from fad to mainstream, and fund sponsors have responded by rolling out products seemingly on a weekly basis that tap into this trend. Helping to fuel this movement are statistics showing that sustainable investment strategies are holding their own in performance—and at times are punching above their weight. Fund research firm Morningstar reported that sustainable investing-oriented open-end funds outperformed non-ESG funds in this year’s second quarter, largely because of a resurgence among the tech stocks that often dominate ESG-screened indexes. (Conversely, the reliance on growth-oriented tech companies in ESG-screened indexes meant the sector lagged when value stocks outperformed in the first quarter.)
Indeed, one of the criticisms of ESG-based indexes is that they often resemble garden-variety large-cap indexes filled with the market’s biggest and most heavily traded companies. Naysayers contend that investors would be better off investing in lower-cost, market cap-weighted ETFs than in more expensive funds that promote their ESG bona fides.
It’s a legitimate critique, and one that Goldman Sachs Asset Management addressed in its media call yesterday when it emphasized its belief that index benchmarks are backward-looking mechanisms that miss the boat on innovative and disruptive companies, and that active management is key to finding cutting-edge companies that can actually move the needle on climate change and sustainability.
We’ll see if they’re correct.