“ESG is not ‘don’t invest in oil and gas’ or ‘don’t invest in coal,’” said Aniket Shah, head of sustainable investing at OppenheimerFunds Inc. “This isn’t about totally ‘greening your portfolio,’ whatever that may mean, but are you weighting your portfolio toward companies that are proactively improving their risk profile against the issues?”

In other words, these positions are hedges against bad behavior. The approach more closely mirrors benchmark indexes and helps with returns. But it risks rendering the term ESG meaningless.

Not Cheap

That’s what Powell’s approach seeks to avoid.

Impact Shares and a handful of others want to keep the focus on social responsibility while remaining commercially viable. Issuers are starting targeted funds that fit the zeitgeist; think gay rights in the workplace, help for veterans, women on corporate boards and so on. UBS Group AG is donating 5 percent of the fee from its InsightShares ETFs, with a minimum floor donation if the funds are slow to catch on. Grants will be made through the bank’s foundation and the first beneficiaries will be announced at the end of the year.

“It’s about engagement and providing a new set of tools to non-profits for their advocacy,” said Powell, who received startup capital from the Rockefeller Foundation’s $4.1 billion endowment.

Of course, none of this comes cheap. Powell’s funds cost about $7.50 a year for every $1,000 invested, roughly $5 of which flows back to the partner charity once the costs of maintaining the fund are accounted for by Impact Shares. That’s $5 more than BlackRock charges for a broad ESG fund. However, the NAACP ETF is outperforming over its first six weeks, up 4.4 percent compared with BlackRock’s $780 million iShares MSCI USA ESG Select ETF, which has returned 2.9 percent since July 19. The funds have two top 10 holdings in common: Alphabet Inc. and Microsoft Corp.

Seeking Engagement

Beyond collecting fees, Powell also believes stock ownership empowers charities by giving them a voice in the room when companies mess up. But some long-time managers say the difficulty of indexing good behavior shows how hard it is for passive strategies to thrive in such a specialized niche.

“Deep integration of ESG implies active management,” said Erika Karp, chief executive officer of Cornerstone Capital Group and a founding member of the Sustainability Accounting Standards Board, which works to standardize how companies report their efforts on sustainability. “When we think about the index, it’s as good as the analyst that put it together.”