Legal & General Investment Management (LGIM) has expanded its ETF range with the launch of a European equity product with an environmental, social and governance (ESG) tilt.
The L&G Europe Equity (Responsible Exclusions) UCITS ETF (RIEU) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.16%.
LGIM has partnered with index provider Foxberry to launch RIEU, which will track the Foxberry Sustainability Consensus Europe Total Return index.
The index operates an exclusion methodology. Companies are measured against a range of criteria in order to minimise exposure to businesses that could face long-term challenges such as increasing regulation or environmental hazards.
The index will exclude companies that become less responsible and will account for companies becoming more responsible as well.
Physically replicated, RIEU uses the knowledge of a sustainability advisory committee to help construct the portfolio, which includes Tomas Franzen and Gustaf Hagerud, who were both responsible in establishing ESG frameworks of Swedish pension funds AP2 and AP3.
The committee is responsible for monitoring companies to identify those engaged in irresponsible behaviour across traditional industry classifications.
LGIM will also engage with the boards of the companies in which the ETF does hold invest in.
Howie Li (pictured), head of ETFs at LGIM, said: “In terms of exclusions, we have seen a variety of different exclusion lists that have been embedded into investment strategies over the years but they are often static or constrained only to certain industries that captured the perspective at a single point in time.
“By bringing experts together to collectively evaluate companies, this ETF is designed to provide investors with an exclusion approach for their market cap index investment.”
RIEU has seen €200m seed money invested by Finnish pension insurer Varma.
Timo Sallinen, head of listed securities at Varma, commented: “We believe that a collective approach is required for responsible investing and we are excited to be part of this initiative in bringing consensus to investment exclusions.
“We recognise that ESG considerations are important for many investors but there are also investors that are under-resourced to meaningfully research individual companies for exclusion.
“Through the sustainability committee, prospective investors have a forum to maintain a dialogue with its members and build consensus behind the fund’s responsible investment decisions.”
Launching ETFs with an ESG screen has been a major part of LGIM's strategy since entering the market following the Canvas purchase in 2018. For example, the firm unveiled its plain vanilla core range in November 2018 which excludes pure-play coal miners, civilian firearms manufacturers, and companies that repeatedly break the UN Global Compact.