Feel that society and the environment are starting to break down? There is an ETF for that.
New day Effect Sustainable Development Goals ETF (SDGS) delivers a growth-oriented product that promotes double impact, promising to advocate for environmental and social development and donating 10% of revenues to youth education and skill development programs around the world.
American Dystopia
Collaborating with a veritable who’s who of progressive economists, scientists, and non-profit organizations, the company’s investment criteria rely on a sophisticated analysis of the world’s problems and solutions. This approach may turn off investors who despise concepts like decarbonizing the economy, but should suit anyone who feels like Mad Max could just be driving down Mainstreet, USA any day now.
Although the world’s problems, the US is a good place to focus on those pressing problems, according to Newday’s President, Anne Popkin. “It doesn’t matter what side of the political spectrum you’re on,” Popkin said. The US has “food inflation, heat waves, rising water in the south, and fires in California. It’s all happening here.”
Growth Limits
The ETF’s rationale is based on the belief that the planet’s ability to withstand human impact on the environment is limited. When these limits are exceeded, we are said to have exceeded the “planetary boundaries” of the earth. In fact, many resources, such as forests—the center of food, fuel, clean water and air—have been pushed beyond safe use limits. Crossing such a boundary means that humans will have a much harder time developing, and ultimately, surviving on the planet.
Newday points to two ways this problem can be alleviated. First, the eponymous Sustainable Development Goals cover 17 broad areas for improving human and environmental outcomes. Established in 2015, the UN Sustainable Development Goals help measure progress against global targets, such as ensuring safe drinking water around the world by 2030. If that sounds far-fetched, consider the final version This exercise, called the Millennium Development Goals, helped lift more than one billion people out of poverty between 2000 and 2015.
Second, Newday accepts the approach of Earth4All, a group of economists and scientists who advocate changing the economic system to stay within the limits of the planet. Based on computer modeling, they argue that climate change and inequality are inextricably linked.
Earth4All calls for an economic system that focuses less on growth metrics and more on the stability and well-being of society and the environment. Some of these ideas come from the 1972 book, Growth Limitswhich is also based on computer models that predict a dystopian future if weather trends continue.
Youth as a Solution
“Our generation is basically going to try to stop the ship from sinking,” according to Popkin, “but it’s the young people who are going to find a way forward.” With this motto in mind, SDGS has partnered with UNICEF to develop its advocacy strategy.
Often companies like Newday engage with companies by meeting with executives, voting shareholder proxies, to filing shareholder proposals asking for specific changes in company policies. .
The ETF will also donate 10% of the proceeds to several non-profit organizations that support youth leadership. One such group is EarthEcho International, which is building a youth movement to protect and restore the oceans. EarthEcho was co-founded by ocean environmentalist Philippe Cousteau, Jr., grandson of the famous ocean explorer, Jacques Cousteau.
Popkin also pointed to the shrinking middle class and growing inequality in the US as problems the ETF hopes to address.
Under the ETF hood
SDGS looking for long-term capital appreciation, a category that still makes sense given today’s volatile market for investors with a longer horizon. Benchmarked by the S&P 500, the actively managed SDGS has an expense ratio of 0.75%, which is about average for this type of ETF.
The ETF invests in a combination of value and growth stocks, with about 60% in US-based companies, and about 40% overseas. Managers also avoid investing in certain countries, including Russia and China.
All assets are assessed to meet basic ESG criteria. Newday examines the quality and breadth of the company’s sustainability disclosures, and whether third parties have certified the data. SDGS also avoid investing in companies involved in the production of landmines, tobacco, and other controversial products. The fund also avoids companies involved in the fossil fuel industry or relying on child labor.
New day SDGS is not the only ETF that links its assets to the UN Sustainable Development Goals. For example, the MSCI Global Impact ETF (SDG) tracks the MSCI index of companies that meet at least one of 17 goals. Morningstar gave this ETF a five-star, silver rating because of its good pricing and having a great management team. The expense ratio is average for an index ETF at 0.49%, and with over $384 million in assets under management, it has proven popular.
There are also many ETFs that focus on just one of the 17 goals, such as reducing the emissions that cause climate change. the SPDR MSCI USA Climate Paris Aligned ETF (NZUS) is one such example.
These ETFs, issued by more traditional managers, lack Newday’s strong commitment to corporate engagement and profit sharing with leading non-profit groups. Although Newday is small fry compared to companies like BlackRock or State Street, the company seems committed to an outsized focus on engagement. Unlike some of its impact-focused competitors, such as Calvert and Green Century, the company does not yet have a meaningful track record as an investor or activist.
