Laurent Trottier, global head of ETF, indexing and smart beta management at Amundi, has said an important difference between some European and US ETF issuers is the level of ESG engagement that takes place at an asset manager level.
Speaking to ETF Stream in the build-up to the Big Call: ESG Investors Forum event, Trottier (pictured) said ETF issuers are unable to divest in the same way as active managers so engagement and voting on issues is the key way to have an impact.
However, he added often European ETF issuers take voting on ESG issues more seriously than their US counterparts as Europe has lead the way around ESG matters.
For example, Amundi voted in favour of 65% of ESG shareholder proposals in H1 this year. This figure jumps to 85% when it comes to proposals around climate.
Meanwhile, a Morningstar report last year found Vanguard supported just 4% of ESG shareholder proposals over the past five years while JP Morgan Asset Management voted in favour of 6%.
“Passive asset managers do not have the same ability to divest in a company,” Trottier continued. “However, a common misconception is ETF issuers do not have a view on companies and therefore do not vote.”
“It is very important to do due diligence on companies when offering ESG ETFs. This is the first and minimal step as a passive asset manager.”
Another area of focus for the French asset manager, Trottier highlighted, is working closely with index providers in order to ensure the indices their strategies track incorporate the company’s values.
This includes producing customised indices that removes companies that operate in areas such as tobacco, controversial weapons and coal as these conflict with the firm’s DNA, he added.
Highlighting this, from 2019, Amundi excludes any company that generates more than 25% of its revenues from coal mining extraction.
“This is a big focus for the product development team when selecting an index to track,” Trottier added. “For example, we exclude controversial weapons as there is a legal framework in Europe that allows us to do that.”
In terms of which ESG ETFs are currently in demand, Trottier said the socially responsible investment (SRI) bucket, which only keeps the best 25% of companies from the parent index, was attracting the most inflows.
“The inflows we are seeing are coming from the more convinced investors,” he continued. “We see regional differences in those who prefer best-in-class approaches rather than simple exclusion strategies with northern European investors tending to want a greater ESG intensity.”