ETF TV News #98 Esther Pan Sloane at UNCDF and Ethan Powell at Impact Shares discuss creating a new ESG index and ETF on ETF TV

Presented by Syntax Advisors.

Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investments. I am Margareta Hricova and joining me today is Esther Pan Sloane, Head of Partnerships, Policies & Communications at the United Nations Capital Development Fund, Ethan Powell, CEO of Impact Shares, and Deborah Fuhr.

Welcome to the show.

Esther Pan Sloane: Thank you.

Ethan Powell: Thank you for having us.

Deborah Fuhr: Thank you.

Margareta Hricova: So Ethan, can you share with us the backstory of your collaboration with the UN?

Ethan Powell: Well, I think it’s important to note that Impact Shares is a nonprofit, SEC-registered investment advisor and we’re funded by the Rockefeller Foundation’s Innovative Finance Group. And our premise is that we work with leading, social environmental advocacy groups to help them translate their own perspective on corporate citizenship into investable strategies. This is our second fund in collaboration with the UNCDF, and it represents the best possible interpretation of the Sustainable Development Goals. SDG 17 is partnerships and collaborations, and here we’ve got Impact Shares, which is funded by a philanthropic organization, the United Nations, which effectively is a quasi-governmental organization, and then, of course, the Global Investors for sustainable development, which are around 30, large, financial institutions managing over $14 trillion. So it really epitomizes collaboration to help solve the net zero challenge.

Deborah Fuhr: And Esther, can you tell us briefly, what does the United Nations Capital Development Fund stand for?

Esther Pan Sloane: So UNCDF is a UN aid agency that focuses on the 46 poorest countries in the world, known as the least developed countries. It has a mandate to use finance to help fight poverty in those 46 poorest countries.

Deborah Fuhr: Why did you collaborate with Ethan to create the Impact Shares MSCI Global Climate Select ETF (NTZO)?

Esther Pan Sloane: Well, we’ve worked together before, so it was a natural choice. The fact that Impact Shares is a nonprofit fund manager really made all the difference for us. It’s difficult for the UN to partner with commercial entities, and so the fact that Ethan started Impact Shares with net profits from the management fees being donated to the social organizations that he’s working with, to create these exchange traded funds meant that our values were aligned from the beginning. And so that made the partnership very easy.

Margareta Hricova: And Ethan, can you tell us about the creation of the MSCI All Country World Climate Pathway Select Index?

Ethan Powell: So it started with the members of GISD. We were then able to engage with MSCI, which is a leader in climate data and indexing. And the idea was that we would really encapsulate all of the wisdom between these organizations and the United Nations, in a best in class solution that identified those companies that are most committed to reaching a credible, net zero target within each sector of the economy. And then we also removed traditional carbon intensive sectors and replaced them with green alternatives for those companies that get over 20% of their revenue from alternative energy sources.

We also have a target of those non-green companies that each of them at least have to be achieving a 7%, year-over-year, carbon footprint reduction, in addition to the credibility of their net zero pledge. We’ve got around 300 companies, and the portfolio itself has one tenth the carbon tonne equivalent exposure as far as emissions are concerned. There’s zero exposure to stranded carbon asset risk. It has three times the exposure to the clean tech solutions subsector, and that’s all relative to the MSCI All Country World Index. And through MSCI’s back testing, the index itself actually does better than the broader, 3500 constituent MSCI All World.

We also have two times as many ESG industry leaders, which are double or triple AAA rated by MSCI. So it’s the best of both worlds; competitive financial outcomes with a very superior, social and environmental backdrop relative to the net zero transition.

Deborah Fuhr: Given the focus we see on ESG, especially coming off of COP26, I’m wondering, Esther, who do you think will be investing in this product?

Esther Pan Sloane: Well, we designed it for both retail and institutional investors. We know from the perspective of the United Nations that we can encourage people to do the right thing. But from the financial sector perspective, you have to create a product that people can buy. So for retail investors, this is something very simple, they can call their broker and ask for NTZO.

And for institutional investors, it meets the needs that we have been hearing from pension funds and other large asset owners, saying that they are looking for ways to support the SDGs and realize the commitments that they’re making to both sustainable development and finance and climate targets. So we think it has a broad appeal for a wide range of asset owners.

Margareta Hricova: And this is the second ETF you’ve created with Impact Shares. Can you tell us about the first one?

Esther Pan Sloane: The first one is called SDGA – the Sustainable Dvelopment Goals Global Equity ETF. It started trading in September 2018, and it was companies that we selected that have positive, economic impact in the least developed countries in terms of jobs or supply chains or orders from least developed countries. We know for many investors, emerging markets are a little bit scary, and so we wanted to give them a way that they could invest in these countries and create economic benefits there in a very easy to access way. So it’s companies that create that impact in the LDCs but are still traded on major exchanges. They’re all international companies. It’s hard currencies, and was recently with the other Impact Shares funds, rated five stars by Morningstar. So we’re very happy with that.

Deborah Fuhr: Ethan, what does it mean to be a nonprofit fund manager and why did you decide to become one?

Ethan Powell: What it means to be a nonprofit fund manager is that we get to collaborate with the best and brightest organizations and individuals within the social and environmental advocacy sphere. We view our impact partners as effectively sub advisors that are achieving an actively managed, social or environmental outcome through engagement with the private sector. If not for our nonprofit classification, we wouldn’t have access to these wonderful organizations and people, and we think it provides better people process and philosophy to achieve the desired social and environmental outcome that our investors are demanding. Unlike traditional for-profit asset managers.

Deborah Fuhr: That’s great. And Esther, do you expect that you’ll launch further ETF with Ethan and Impact Shares?

Esther Pan Sloane: Absolutely. When we launched our first fund, SDGA in 2018, we imagined a whole series of ETFs related to every SDG. We were hoping to have B, C, D, and E, because there are 17 SDGs, and we know the demand for impact investments is growing. And of course, the demand for development impact, to support the achievement of the SDGs is enormous, especially now with the impact of the COVID 19 pandemic. So we look forward to working with Ethan for a very long time.

Deborah Fuhr: That’s great. Thank you both for joining us today.

Esther Pan Sloane: Thank you.

Ethan Powell: Thank you.

Margareta Hricova: So Debbie, can you tell us about some of the other news in the ETF industry?

Deborah Fuhr: Last week, there were 17 new listings from 15 issuers and 11 new cross listings. I think some of the really interesting findings are some of the research that we’re just finishing up. When we’re digging through regulatory filings and mutual fund holdings to uncover how many investors were using ETFs in 2020, we found that the number had grown to 6570 institutions, and institutions are defined as an entity that manages over $100 million.

And when we look at the number of mutual funds investing in ETFs, we see that that number has grown to over 12500. So significant growth in both the number of institutions and the number of mutual funds.

And then on to other significant growth, the ETF industry as of the end of October is touching on $10 trillion. We’re at 9.98 trillion. Net flows for the year are over a trillion dollars. For the month of October, we took in 116 billion. We are significantly higher than all of last year in terms of net flows and we’re only 10 months through the year. Last year, for the full year, there were 763 billion of net inflows.

We’ve had 29 months of consecutive net inflows, which I think is quite impressive when you think about all that has happened in the past 29 months. Most of the money is going into equities, or definitely in a risk on environment where investors are feeling pretty optimistic. Corporate earnings have looked good. Globally, right now, there are 9541 products with 19201 listings. There’s 583 issuers, 79 exchanges in 62 countries.

If we were to take only the top 100 out of that 9541, that has 1% all the products, they account for 53% of all the assets. So there are some really big ETFs that people prefer, definitely a first mover advantage. And so we’re definitely uncovering a lot of interesting findings at the end of the 10th month of the year, and I look forward to sharing more insights next week.

Margareta Hricova: Thanks so much, Debbie, and thank you to our sponsors Syntax Advisors, to Esther, Ethan and of course, to all of you for watching. To watch prior episodes and to see news from the ETF industry, visit us at ETFTV.NET.

Thank you.

ETF TV News does not provide investment advice, nor recommend products.

Published on November 12, 2021