Companies that do the right thing will always come out on top. They have long understood that this is neither about altruism nor charity: doing good is good for business.
Ticker: SDGA tracks the Morningstar® Societal Development Index, which is designed to provide exposure to companies worldwide with strong policies and practices relative to the United Nations Sustainable Development Goals (SDGs) that are actively engaged in the world’s poorest countries known also as the 47 Least Developed Countries (LDCs).
Broad global equity market exposure. SDGA is designed to provide broad market exposure to Morningstar® Global Markets Large-Mid Index, comparable to that of the MSCI All World. With SDGA, investors can achieve broad equity market returns while driving social change.
Innovative model for social impact. Impact Shares is a 501(c)(3) non-profit organization, that donates all net advisory profits from SDGA’s ETF management fee to the UNCDF last mile financing vehicle. This provides an additional funding source for risk capital deployed as grants, loans and guarantees to small to medium sized businesses in the 47 LCDs to build modern health, communications, finance, food and agriculture infrastructure among other goals.
Sustainable Development Goals. SDGA offers investors a liquid investment vehicle that supports large multinational companies generating an economic benefit in the LDCs. The ETF will also support UNCDF’s work through a sharing of the fund management fee.
The creation of this ETF reflects the importance of the LDC markets and our efforts to increase private sector investments in these key emerging economies. It identifies those companies that are investing responsibly to help achieve the SDGs in LDCs.
It has been estimated that achieving the SDGs will require between US$5 to $7 trillion, with an investment gap in developing countries of about $2.5 trillion. Efforts by governments and philanthropy alone will not be enough. According to OECD estimates, only 7% of the total private capital mobilized through blended transactions from 2012-2015 went to LDCs ($5.5 billion out of $81 billion.
The SDGs have opened the door for the UN to partner with private actors in new ways. This movement has helped private sector actors develop innovative new mechanisms – beyond corporate social responsibility and philanthropy- to align their long-term investments with the SDGs. This ETF is one of those opportunities that aims to align investor choices with the SDGs.
About UNCDF. The UN Capital Development Fund (UNCDF) makes public and private finance work for the poor in the world’s 47 least developed countries. With its capital mandate and instruments, UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development. UNCDF’s financing models work through two channels: financial inclusion that expands the opportunities for individuals, households, and small businesses to participate in the local economy, providing them with the tools they need to climb out of poverty and manage their financial lives; and by showing how localized investments –through fiscal decentralization, innovative municipal finance, and structured project finance –can drive public and private funding that underpins local economic expansion and sustainable development. By strengthening how finance works for poor people at the household, small enterprise, and local infrastructure levels, UNCDF contributes to SDG 1 on eradicating poverty and SDG 17 on the means of implementation. By identifying those market segments where innovative financing models can have transformational impact in helping to reach the last mile and address exclusion and inequalities of access, UNCDF contributes to a number of different SDGs.
How does the index work?
How are companies selected and/or excluded?
The index is a proprietary product of Sustainalytics- the leading independent global provider of economic, social, and governance (ESG) and corporate governance research and ratings to investors- and Morningstar, an investment research company offering mutual fund, ETF, and stock analysis, ratings, and data, and portfolio tools.
It has four screens and a booster
The first screen is against the UN Exclusionary Criteria as defined by the United Nations Development Programme in its 2013 Policy on Due Diligence and Partnership with the Private Sector, Section 3.1. Companies working in field identified in this policy (i.e. nuclear weapons, alcohol, etc.) are excluded.
The second screen is for companies that are signatories to the UN Global Compact (a voluntary initiative where CEOs make commitments to implement universal sustainability principles and take steps to support UN goals, including the SDGAs. There are currently about 9,500 participants). Companies that have not joined the Global Compact are excluded.
The third screen is for companies that have a high controversy rating [i.e., 4 or 5 on a scale from 1 (low controversy) to 5 (high controversy)] on issues including business ethics, governance, social issues, environmental impact, supply chain, or community incidents. Sustainalytics compiles and scores the controversy criteria. Any company with a high controversy rating is excluded.
The fourth screen applies 70 customized ESG indicators assessing company policies on issues including bribery and corruption, employee working conditions, supply chain monitoring, human rights, etc., and assigns a score to each one. UNCDF contributed sector-specific information to customize these indicators in key sectors where we have expertise, including financial services, IT, telecoms, and fintech. Companies with very low scores on these indicators are excluded.
Finally, companies with a higher share of revenues generated in LDCs receive a “boost” through a multiplier that can increase their overall index score.
The 200 companies with the highest index scores are included in the ETF
Does the ETF include only companies operating in LDCs?
The ETF includes publicly listed companies operating globally that support the SDGAs and prioritizes those that have exposure to LDCs, lower-income, and lower middle-income countries-a total of 80 countries, including the 47 LDCs. More than 50% of the companies in the index work in sectors where UNCDF has deep knowledge and expertise (i.e. financials, IT, communications, agriculture, energy). Up to 5% of the ETF will be invested in companies directly based in LDCs, lower-income and lower middle-income countries.
The index tracking and scoring is based on publicly available information reported by companies. Therefore, if a company does not report its exposure to LDCs or lower-income and lower middle-income countries, it will not be prioritized by the index- although it could still be included if it scores high enough on the ESG criteria.
If LDC-listed companies are not reporting according to ESGA criteria, they are not included in this index and will not be investable from this ETF. Approximately 45% of the companies currently in the index have an exposure to LDCs, lower-income, or lower middle-income countries.
Why should investors be interested in this ETF? What type of investors would be interested in this ETF?
The ImpactShares ETF offers a liquid, socially responsible investment vehicle for institutional investors (including pension funds) and private investors who want their investments to support the achievement of SDGs in the poorest countries. The ETF will identify and reward companies that generate revenues in LDCs and low-income countries. More than half of the companies in the ETF operate in priority sectors for UNCDF. The income generated by the sharing of the management fee will support UNCDF’s work in the world’s poorest countries and creates an interesting new way to fund the work of the United Nations.
This ETF would be of interest for institutional investors- including pension funds and sovereign wealth funds- as well as foundations and family offices. As a passively managed investment instrument, the ETF could also appeal to individual investors, especially millennials, who have expressed a strong preference for investment options that reflect their values. This group is driving the growing demand for financial products that incorporate environmental, social and governance (ESG) criteria and alignment to the SDGAs. This group also has a strong focus on income inequality and sustainable development impact in developing countries.
What is the expected or desired impact of the ETF over the next 5-10 years?
The hope is that the ImpactShares ETF will attract institutional and individual investors, and that its performance will match its benchmark, Morningstar Societal Development Index.
The success of this ETF could encourage more companies to report data according to ESG and SDGs standards, as well as to disclose their exposure to LDCs, lower-income, and lower middle-income countries in terms of revenues generated, supply chain, employees and customers in these countries.
Finally, we hope the ETF will encourage the visibility and growth of companies domiciled in LDCs, lower-income, and lower middle-income countries that report according to ESG and SDGs criteria. The goal is for the ImpactShares ETF on SDGs in LDCs to include ever-greater numbers of LDC-domiciled companies over time.
The Impact Shares Sustainable Development Goals Equity ETF invests in foreign investments and emerging markets, In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.
This ETF offers those clients an exciting way to support the UN’s work while rewarding companies with accountable business practices and good management policies.
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Impact Shares ETFs are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Impact Shares Corp, the Investment Adviser for the Funds. Additional information about SIDCO is available on FINRA’s BrokerCheck.
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