VanEck talks sustainable equity investing (ASX:ESGI)

Funds Management

by Jessica Amir

VanEck Australia Vice President, Institutional Business Development, John Caulfield talks about the VanEck Vectors MSCI International Sustainable Equity ETF (ASX:ESGI) and why it is proving popular with investors looking for international exposure to stocks with sustainable long-term business models.

Jessica Amir: Hello Jessica Amir here for the Finance News Network. Today I am with VanEck Australia Vice-President of Institutional Business Development, John Caulfield. John, welcome.

John Caulfield: Thank you for having me.

Jessica Amir: For new investors, just tell us about VanEck Australia and VanEck Vectors MSCI International Sustainable Equity ETF (ASX:ESGI)

John Caulfield: VanEck is a US headquartered investment manager, we’re privately held. We’ve been managing money since 1955. We have approximately $60 billion under management at the moment, with the bulk of that being in our ETF business. In Australia, we now have 16 ASX-listed ETFs, with one of the most recent being the International Sustainable Equity ETF (ASX:ESGI).

Jessica Amir: Now before we talk about the ETF in more detail. Just tell us about the purpose of sustainable investing, or its importance?

John Caulfield: Sustainable investing or socially responsible investing has been around for many decades, going back to exclusions based on religious beliefs, even the dawn of shareholder activism. A lot of that was negative screening, backward looking and where we’ve seen a real shift going forward, is on the positive screening. And the thesis behind that being, if you invest in companies that have good management, good policies, manage risk well, those are going to be the companies going forward, that deliver value to shareholders.

A good recent example of this is Facebook. This actually failed the MSCI ESG Research screen for data privacy and has done since it instigated coverage about six years ago. And we’ve seen a good recent example of the impact that has had on shareholders, with the recent scandal.

Jessica Amir: Can you just tell us about the ETF?

John Caulfield: ESGI invests in developed markets, excluding Australia. That initial universe has around 1,500 stocks and we filter that down through a number of steps. The first being an exclusion based on fossil fuels. Second is business involvement, where companies involved in alcohol, tobacco, gambling etc. are removed. The third step I think is the crucial differentiator on our behalf, and that’s the positive screen. Now MSCI Research rank all of these companies by their ESG rating, and what we do is compare them on a peer relative basis within each sector. And only take the very best of those companies.

So you can be a good company but if you’re not the best, you’re not going to make it into our index. And the final step of those that are left, we remove the highest carbon emitters. And where you end up is a very diversified portfolio, over 200 companies. At a regional level, we underweight the US, overweight Europe specifically countries like France, Germany and Denmark.

Jessica Amir: What else should investors be aware of?

John Caulfield: Management fees are 55 basis points and obviously this trades on the ASX all day. It’s an open-ended fund. The price you see will be very close to NAV (net asset value).

Jessica Amir: A lot of Australian investors already have Australian shares and managed funds in their portfolio. So how would this ETF and ETFs in general, really complement their existing position?

John Caulfield: Australian investors do have a very heavy home country bias. And what ETFs in general have helped to do is provide international diversification, giving you easy access to a portfolio of international companies trading on the ASX. ESGI is a good example of this where you’re getting that international exposure, but also an overlay of investor values and sustainable investing.

Jessica Amir: Last question now. What’s your final message to investors today?

John Caulfield: ESGI is an all-encompassing true to label sustainable equity offering. By working with MSCI ESG Research, we are using the largest and most credible data provider in this space. By incorporating MSCI’s ESG Research, who are the broadest and most comprehensive provider in this space, we provide a comprehensive combination of the positive screen. Where we include the ESG leaders, around 90 per cent of our portfolio is rated AAA or AA, but also low carbon emissions. Where the carbon footprint is around 80 per cent lower than the benchmark index.

Jessica Amir: John Caulfield, thanks so much for your time.

John Caulfield: Thanks for having me.