If you don’t like the idea of investing in companies with poor records on issues like sexual harassment in the workplace or gender diversity in boardrooms, here’s a new option for you. The Impact Shares YWCA Women’s Empowerment ETF, launching in the first quarter of 2018, only contains the shares of companies with high grades on women’s issues.
The ETF, or Exchange Traded Fund, is one several impact-themed funds being launched by a Texas startup called Impact Shares next year, each with the name of a well-known nonprofit attached (the initial ETF is actually backed by YWCA Metropolitan Chicago). The National Association for the Advancement of Colored People (NAACP) is also launching an ETF that empowers people of color through hiring, remuneration, and promotion policies. And others like Oxfam and Habitat for Humanity may not be long behind. They are in discussions with Impact Shares about ETFs around global poverty alleviation and affordable housing. ETFs are made up of basket of stocks, but unlike conventional index or mutual funds, they are tradable like common stocks. That potentially opens impact investing to more people.
Ethan Powell, founder of Impact Shares, says the nonprofits see potential for influencing corporate behavior. “There is a tremendous amount of power that comes from capital allocation and [in how investors spend their money],” he says. “Our investors are aligning their capital with a nonprofit that is really steeped in the issue that they care about.”
Stocks in the YWCA ETF are analyzed by Equileap, a gender-focused investment research group. It scores companies across 18 metrics, from their policies on harassment and employee protection, to those on equal pay, and the proportion of women in senior management. Its latest public report, covering 3,048 global companies, shows cosmetics giant L’Oreal, media company Pearson, and National Australia Bank in the first three places. The first U.S. company listed is Merck, in 18th place. Banks score well generally, with heavy industrial and energy companies tending to score worst.
Powell, who is based in the Dallas suburb of Frisco, says it wasn’t easy to persuade the nonprofits to get involved in finance. Despite the opportunity to influence corporate behavior, they were wary of collaborating with Wall Street.
“The big challenge for us is really in educating the nonprofits and getting them to embrace a new concept,” Powell says. “There’s a culture clash between the nonprofits and what is effectively Wall Street. Generally, they have a level of distrust towards corporate America and definitively Wall Street, which has a reputation for being self-serving.”
The nonprofits are willing to lend their names, though, because they benefit from the ETFs. Once Impact Shares, which is itself also a nonprofit, covers its own costs, it is donating all of its advisory fees to the groups. Powell estimates the partner organizations could get about $500,000 in donations for every $100 million dollars invested in their ETFs.
“For nonprofits creating the ETFs, like the NAACP and the YWCA, there is an opportunity to create engagement with large corporations and investors to drive social change,” says Saadia Madsbjerg, managing director of the Rockefeller Foundation, which awarded Impact Shares a $300,000 grant last summer as part of its Zero Gap impact finance innovation program.
“It’s something that the nonprofits traditionally haven’t tried before and the ETFs also provides a sustainable source of funding for the nonprofits at a time when that money is desperately needed,” she says.
Investors who are interested in using their money for positive change have a growing range of possibilities these days, including managed funds that screen for environmental, social, and governance (ESG) factors and robo-advisers that pick stocks algorithmically. Powell says impact-themed ETFs are a flexible option for people with moderate means: the minimum investment is just $20. Similar ETFs already exist, including State Street’s SPDR SSGA Gender Diversity Index ETF (or “SHE”), though they don’t have national nonprofits behind them.
Single-issue investing in complicated organizations may be an inexact approach. A company that does well by its women may still do bad things, after all. But the new ETFs promise market-rate, “S&P 500-like” returns while rewarding companies that do better on social issues. “We’re giving the investing public a way to engage in an issue and use their capital to not only generate a return for themselves but also to incentivize social changes,” Powell says.