If there's one hot topic that Americans may remember about 2017, it's the wave of sexual harassment cases that took the corporate world by storm.
[ibd-display-video id=2669012 width=50 float=left autostart=true] From famous actors, producers and entertainers to newscasters, big corporate figures and politicians, the Harvey Weinstein epidemic has cost many their jobs, reputations and marriages.
But as the stories continue to unfold, investors must undoubtedly wonder whether the financial industry is going to follow suit when considering certain company stocks or bonds for inclusion or exclusion in their funds and portfolios.
Environmental, social and governance, or ESG, investment assets grew to $8.7 trillion at the start of 2016, a 33% increase since the outset of 2014, according to the US SIF Foundation Report on US Sustainable, Responsible and Impact Investing Trends.
But while 43 ETFs totaling $4.7 billion are labeled as socially conscious, 55% of those are focused on environmental issues and only five ETFs with less than $1 billion in assets combined are considered thematic socially conscious, according to data from Impact Shares and Morningstar Direct.
"Everyone agrees on what a good portfolio looks like on the E side and what good corporate governance looks like on the G side, but the S is often called the messy middle, because everybody has different social priorities," said Ethan Powell, founder and president of Impact Shares, a not-for-profit startup that partners with leading charitable organizations to launch ETFs that carry a specific social impact theme.
Understanding and communicating these social priorities to a financial intermediary and then constructing a portfolio around it is "next to impossible," he noted.
His company, Impact Shares, is launching the first ETF focused on women empowerment that will screen for sexual harassment. The fund will contain around 200 to 300 stocks and will track the Equileap North American Women's Empowerment Index. The index applies 19 screening criteria, which cover gender balance in leadership and workforce, equal pay, flexible work options, safety at work and freedom from violence, abuse and sexual harassment.
It is due to debut in the first quarter of 2018 under the name of Impact Shares YWCA Women's Empowerment ETF, under the ticker WOMN. It is being launched in association with the not-for-profit women's organization YWCA Metropolitan Chicago, to which it will donate management fees after expenses.
Two other funds that focus on women empowerment but do not screen for sexual harassment are $358 million SPDR SSGA Gender Diversity ETF ( SHE ) and $37 million Barclays Women in Leadership ETN ( WIL ).
While there's currently no ESG fund that explicitly screens for sexual harassment, it wouldn't be a stretch to image that a high-profile sexual harassment or abuse case involving a CEO might trigger a flag on grounds that the case draws unacceptable controversy, says Alex Bryan, director of passive strategies research for North America at Morningstar.
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For example, $3.8 billion Vanguard FTSE Social Index ( VFTSX ) "avoids stocks involved in controversies related to labor standards, human rights and environmental impact," writes Bryan in a recent report. "Constituents must meet a minimum level of diversity in their leadership ranks to qualify for inclusion."
Vanguard FTSE Social Index is "one of the cheapest and best-diversified U.S.-focused socially conscious funds around," Bryan said.
Sexual harassment is not an issue that often will percolate to the top of corporate management, Bryan says. "And when it does, an ESG manager can get into some trouble if they're owning a firm that is involved in a high-profile sexual harassment controversy," he said. "There will be pressure on these managers to start to take this into account, but again, I think that's probably a little bit further out in terms of implementation, because this is not something they're talking about now."
The industry is starting to feel the public pressure and usually it takes some time for that to translate into actual changes in the way that products are being managed, he added.
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