Saturna Capital is set to launch Europe's first active ETF with a carbon offset mechanism this month, targeting companies performing well on environmental, social and governance (ESG) metrics.

The Saturna Sustainable ESG Equity HANzero UCITS ETF (SESG) will list on the London Stock Exchange in July with a total expense ratio (TER) of 0.70%.

Emulating the investment strategy of Saturna’s sustainable equity mutual fund, SESG will offer exposure to the performance of between 50 and 60 global equities.

Agnostic towards both geography and sector, the ETF employs positive screens for performance on metrics such as governance, water and waste management, carbon emissions and social issues.

SESG also implements negative screens to exclude companies engaged in higher ESG risk industries such as alcohol, gambling, weapons and fossil fuel manufacturing.

SESG is the second ETF launched via white-label ETF issuer HANetf as part of its carbon offsetting HANzero range and is classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).

In partnership with South Pole, strategies in the HANzero suite have their carbon emissions offset by the Topaiyo forest conservation project in Papua New Guinea and the Musi River hydro plant in Sumatra.

Jane Carten, CEO of Saturna, commented: “Saturna has a proprietary ESG scoring model which uses a combination of negative and positive screening, along with financial analysis and an emphasis on low debt, to outperform peers on a variety of ESG factors.

“We believe that companies proactively managing business risks related to ESG issues are more resilient and make better contributions to portfolios designed for patient investors.”

ETFs and impact investing? Issuers target stronghold of active managers

Hector McNeil, Co-CEO of HANetf added: “Active ETF assets are currently small given the size of the overall industry, but growth is strong.

“The well-recognised advantages of ETFs – intra-day trading, shortability, lendability, having an ETF portfolio held in one venue, portability of positions between trading venues, low entry costs and diversification – are becoming more prevalent.

“This gives investors the option to gain exposure to the same active investment strategies they already own via an ETF wrapper.”

Another talking point for SESG is that its TER is three basis points lower than the Saturna sustainable equity mutual fund it is based on.

However, its active management approach means its fee is 20 basis points higher than the passively managed HANetf S&P Global Clean Energy Select HANzero UCITS ETF (ZERO), Europe’s first carbon offset ETF, which was announced less than two weeks ago.

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