The New NAACP Fund Shows ESG ETFs Are Evolving

As more investors consider environmental, social and governance (ESG) strategies, fund issuers are bringing new spins on responsible investing to market.

The Impact Shares NAACP Minority Empowerment ETF NACP, which debuted last week, represents a start to the next generation of ESG exchange traded funds.

What Happened

NACP was launched in partnership between Dallas-based Impact Shares, the first ETF provider structured as a non-profit entity; and the National Association for the Advancement of Colored People. The new ETF follows the Morningstar Minority Empowerment Index.

That index “provides exposure to U.S. companies that stand out for their commitment to racial and ethnic diversity,” according to Morningstar. “Commitment is measured through policies, programs, and performance, as well as societal impact. Companies are judged not only on the basis of their own workforces and boards of directors, but also on their supply chains and community interactions.”

Why It's Important

Impact Shares is putting its money where its mouth when it comes to its ETF business.

The company, which is structured as a charity, “will donate the net advisory proceeds it receives from each ETF it sponsors back to the collaborating partner nonprofit, creating meaningful engagement with corporate America and providing the investing public with more targeted, credible social-impact investing options,” according to a statement.

NCAP's underlying index uses a variety of screens that jibe with the NAACP’s values of justice, equality and inclusiveness. Those screens include board diversity, corporate discrimination policies, scope of social programs, digital divide programs and freedom of association policies.

Other screens include community development and diversity programs, safety management, minority inclusiveness and conflict minerals programs.

What's Next

“Assets managed with ESG strategies now account for more than one out of every six dollars under professional management in the United States,” according to Impact Shares. “The assets managed at the start of 2014 by investment firms considering ESG issues grew more than three-fold—from $1.4 trillion at the start of 2012 to $4.8 trillion.”

The new ETF has an expense ratio of 0.76 percent per year, or $76 on a $10,000 investment.

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Image credit: Derrick1968, via Wikimedia Commons