With the increasing acceptance of the value of incorporating ethical considerations into your investments, it’s no surprise that the large financial institutions would start to roll out products aimed at sating that demand. Recently one of the large foreign players rolled out an Australian Share, Exchange Traded Fund (ETF) with the word “Ethical” prominent in the title. As we do a lot of work in the Ethical space, we of course researched this new product.
To gain the “Ethical” tag, the fund excludes “Tobacco and Controversial Weapons”. Okay, seems like a good start. Most ethical funds would also at a minimum have exclusions around fossil fuels on the grounds of climate change, but I guess there’s no value in repeating what’s already been done.
So Tobacco and Controversial Weapons are the two “sin” sectors this funds looks to enable investors to avoid. In the ASX200, how many manufacturers of Controversial Weapons do you think there are? Can’t think of any? That’s because there are none. Pretty easy to avoid then right?
Tobacco manufacturing is dominated by British American Tobacco, and Philip Morris, neither of which is listed in Australia. In fact, as with weapons, there are no tobacco manufacturers in the ASX200.
Perhaps the fund excludes tobacco distributors then? The two largest in Australia are Coles and Woolworths. Now these companies are listed in the ASX200 (Coles as part of Wesfarmers). A quick look at the top 10 holdings of this fund however, reveal that in fact it holds both of these companies.
So how does this “Ethical” fund differ from an ETF that covers the Australian share market? The answer would appear to be that it doesn’t.