Goldman Throws Its Hat in the ESG Ring

Count Goldman Sachs Group, Inc. (GS) as the latest Wall Street giant to eye entry into the growing world of environmental, social and governance (ESG) funds.

Goldman Sachs Asset Management (GSAM), Goldman's asset management unit and the firm's exchange traded funds (ETFs) department, filed plans with the Securities and Exchange Commission (SEC) to launch an ETF tracking an index from JUST Capital Foundation that tracks companies with just business practices.

Goldman “said earlier this year it had surpassed $10 billion in assets tied to ESG investing strategies, up from about $200 million when it acquired impact investing boutique Imprint Capital in 2015,” reports Bloomberg.

Assuming Goldman's new ETF comes to market, it will be known as the Goldman Sachs JUST U.S. Large Cap Equity ETF. The new ETF will track an index designed by JUST Capital that is based on JUST's annual rankings of corporate behavior.

The JUST 100 currently includes familiar names such as Intel Corp. (INTC), Texas Instuments Inc. (TXN), Microsoft Corp. (MSFT), Google parent Alphabet Inc. (GOOG), Procter & Gamble Co. (PG), PepsiCo Inc. (PEP), Biogen Inc. (BIIB) and Apple Inc. (AAPL).

“To define just corporate behaviors, JUST Capital has to date polled over 72,000 members of the American public as part of a continuous, multiphase series of surveys,” according to JUST Capital. “These polls, which target a representative sample of the U.S. population, determine the issues that matter most to Americans, including higher-level thematic Drivers and specific Components of corporate justness, as well as the relative importance of each. JUST Capital has established Metrics for each of these Components and collected and evaluated data from an extensive range of sources, which are then used to measure companies’ performance on the issues defined by the American public.”

The Just Capital Large Cap Diversified Index is barely more than a year old, but over that period, it has topped the Russell 1000 Index with better risk-adjusted returns.

GSAM already has a growing footprint in the smart beta universe thanks to popular ETFs, such as the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) and the Goldman Sachs ActiveBeta International Equity ETF (GSIE). The Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF is GSAM's newest ETF, having launched in late June.

With a growing commitment to better in-house environmental policies, Goldman itself could be one of the stocks found in the new ETF.

“Goldman ranks #2 among over 875 companies for environmental efficiency in Forbes and Just Capital's exclusive list of the most Just companies in America,” according to Forbes.

While ESG ETFs represent a mere sliver of the overall smart beta landscape, issuers see opportunity to meet demand from increasingly socially inclined investors, including millennials. BlackRock Inc.'s (BLK) iShares unit, the world's largest ETF sponsor, offers the two largest ESG funds, but other issuers are finding ESG success as well.

For example, State Street's SPDR SSGA Gender Diversity Index ETF (SHE) is less than two years old and has almost $370 million in asset under management. SHE “seeks to provide exposure to US companies that demonstrate greater gender diversity within senior leadership than other firms in their sector,” according to the issuer.

Oppenheimer offers two ESG ETFs while Nuveen's Nushares features a suite of eight newly minted ESG funds, providing exposure to asset classes including bonds, U.S. stocks and international equities.

Currently, there are approximately 50 US-listed ETFs meeting ESG criteria, none of which have $1 billion in assets under management.