The exchange-traded fund (ETF) BetaShares Global Sustainability Leaders ETF (ASX: ETHI) could be a top-quality pick for investors looking for a way to get global diversification and a good ESG rating.
For readers that don't know, ESG stands for environmental, social and governance. The Motley Fool guide on ESG investing gives a good explanation of what that means.
Most of the most popular ETFs on the ASX don't have extensive consideration for ESG factors. The Vanguard Australian Shares Index ETF (ASX: VAS) and iShares S&P 500 ETF (ASX: IVV) just invest in some of the largest businesses, even if they're from sectors like fossil fuels or gambling.
For investors looking for global diversification as well as ESG, I really like one particular ETF, the ETHI ETF.
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Diversification and performance
It's invested in 200 of the largest businesses globally that pass a number of ethical screens, which I'll get to in a moment.
A portfolio of 200 companies is certainly enough diversification in my opinion. These businesses come from around the world.
While at least 70% of the portfolio is invested in US-listed companies, other places with at least a 2% weighting include Japan, Germany, the Netherlands, Canada, the UK and Hong Kong.
There are currently large weightings to four different sectors within the portfolio: IT (31.4%), financials (22.7%), healthcare (16.6%) and consumer discretionary (13.2%). IT is the industry that seems to typically offer the most growth, so it's promising that this ASX ETF is invested so much in it.
The businesses that the portfolio is invested in have performed well – over the past five years the ETHI ETF has returned an average of 16.3% per annum, though past performance is not a guarantee of future performance. Perhaps those returns show that ethical businesses can do really well, for shareholders and everyone else.
The annual management fee and cost are 0.59%, which is quite a lot cheaper than many other ethical funds.
ESG factors
What makes the ETHI ETF exciting on the ESG side of things is the number of exclusions it does.
This ASX ETF has been certified by the Responsible Investment Association Australasia, according to the "strict operational and disclosure practices required".
There are a number of different activities that are excluded from the portfolio including fossil fuel, gambling, tobacco, uranium and nuclear energy, weapons, companies that destroy valuable environments, animal cruelty, "chemicals of concern", "predatory lending" and pornography.
It also excludes businesses where there is evidence of "human rights violations including child labour, forced labour, sweatshops, bribery and corruption." The ETHI ETF also doesn't invest in businesses where there are no women on the board of directors.
A lot of work goes into making this ASX ETF highly ethical, and it's useful that this option ticks a number of other investment boxes.
