Can An ‘Impact ETF’ Drive Social Change?

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Co-Founder and Chairman of JUST Capital Paul Tudor Jones, joined by NYSE President Stacey Cunningham, rings The NYSE Opening Bell. © 2018 NYSE Group, Inc. All rights reserved.

There is no question that socially responsible investing has exploded in recent years.

In 2016, total global assets under management within the combined socially responsible, ESG (environmental, social, and governance), and sustainable space reached $22.89 trillion – up 25 percent since 2016 – according to the US SIF: The Forum for Sustainable and Responsible Investment. In the passive space, growth of ESG offerings has also been impressive. In 2017, Athena Capital Advisors estimated that since the first SRI & ESG ETF was launched in 2005, more than 50 new products have been launched, attracting over $6 billion of inflows (Landscape Review: Passive SRI & ESG Investing in Public Equity Markets, Athena Capital Advisors, July 2017).     

But while the scale of socially conscious investing has swelled, an important question remains unanswered today: Does secondary market trading of a large, listed company’s shares actually have any influence on that company’s behavior on social or environmental issues, or how it allocates capital?

For example, does buying the SPDR MSCI ACWI Low Carbon Target ETF truly help address climate change? Will investing in the Barclays Women in Leadership ETF actually advance the careers of women in the workplace?

For my organization, JUST Capital, this is more than simply a theoretical question, as we recently helped launch an ETF designed to invest in companies that are driving positive change for workers, customers, communities, and the environment – and so we have real skin in the game. 

To impact investing purists, the answer to the headline question is probably a negative one. True impact investing, they argue, requires that there be a clear increase in social outcomes beyond what would otherwise have occurred without the investment in question – a requirement almost impossible to prove in the listed equities space, let alone in the index investing area.  

But while direct cause and effect may be challenging to prove, we are optimistic about the potential for socially-motivated investing to promote a more just marketplace for the following reasons.   

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