While the limited product offering in the passive ETF space is problematic for many investors, Syntrus Achmea gets around this by using segregated accounts with asset managers, to which it has access thanks to its sheer scale. This allows the company to invest money passively in a sustainable way in a more bespoke fashion, which is not possible through ETFs.
“Segregated accounts enable us to focus on CO2 reduction,” says Van Mulligen. “Some clients want exposure to the MSCI World with 15% less CO2, while others want 40% or 50%. Passively managed segregated accounts that have a best-in-class approach offer a cheap and bespoke solution.”
Different shades of green
Not all fund selectors are convinced of the ESG credentials of passive investing, believing such solutions are at best ‘light green’, being based on superficial screening.
Admittedly, SRI ETFs come in different shades of green, but even the ones tracking the MSCI SRI indices, which are considered relatively strict, feature a lot of companies a manager of an active ESG fund would probably not consider investing in.
The MSCI SRI USA index, for example, includes the Texas-based oil & gas exploration company Pioneer Natural Resources, which has almost a quarter of its oil reserves in shale.
Louie French, a fund analyst at the UK wealth manager Tilney Bestinvest, believes ESG investing is too complicated for trackers to work. “All trackers use some form of screening but in order to get a proper idea about how sustainable a company really is, you have to dig deeper,” he says.
Johnson & Johnson is another company found in many SRI indices, despite some question marks over its suitability. He adds: “One might think testing on animals [as done by Johnson & Johnson] is unethical, but SRI ETFs don’t screen for this.”
Therefore, French prefers leaving the decision whether to include a stock or not up to a fund manager. “They should know exactly how ethical or unethical a company is based on the in-depth screening they conduct.”
