Fossil free ETF uses Wall St as activist tool

A new combination of impact investing and an ETF was launched last week in the form of Change Finance Diversified Impact US Large Cap Fossil Fuel Free ETF (CHGX).

Change Finance is a majority women-run asset manager with deep roots in climate change activism. Donna Morton (pictured), CEO, explains that her firm is determined to shake up the socially responsible investment world.

The new ETF uses diversified impact screens and aims to be truly fossil fuel free. This ETF then goes further than its ESG peers because it also excludes companies which fail to meet high ESG standards for human and labour rights, health, climate, and pollution.

Collectively, the team behind Change Finance has more than 80 years of combined experience in sustainability, social innovation, and ethical wealth management. Morton is joined by Change Finance President Andrew Rodriguez and Hunter Lovins, as EVP, the founder of Natural Capital Solutions, who was named a ‘Hero of the Planet’ by TIME magazine.

Morton says: “Capital markets can solve problems and resolve climate change. Change Finance is a creative start-up and our first ETF focused on zero fossil fuel integrates what is good for people and for the planet. Our intention is to move trillion of dollars from harm to healing.” Morton says that the Change Finance name is the firm’s intention. “The most powerful human system ever invented is the capital system and financial markets. We can use capital markets to design the world that we want.”

The ETF launched with USD1.8 million and potential future commitments of USD15 million. Rodriguez says: “In the US, what’s happened is that a lot of Wall St firms have picked up on the fact that people want to invest with their values now. It’s an interesting moment in time.”

Before the ETF, the team ran separately managed accounts (SMAs) totalling USD6 million, with diversified impact rules and increasingly focused on climate change. “When we ran SMAs people wanted to be invested with a gender lens, but were also concerned about climate change. If it’s material that fossil fuels are a big risk, it’s a big risk to hold assets in fossil fuels,” Rodriguez says. “We think investing across the spectrum of values is really important and you start with environmental, social and governance (ESG).”

Change Finance has set over 50 standards in total. Rodriguez says: “We have set the highest ESG standards for an ETF yet, and companies have to hurdle over all of them to make it into the ETF.” Morton and Lovins were involved in conversations to set a more rigorous standard for the term fossil fuel free, with other investment firms and sustainable advocacy firms like the Fossilfreefunds.org database.

“We are one of the first fossil fuel free products that have gotten rid of all of the oil and gas and companies, as well as the lead suppliers to those industries,” Morton says. “It is a really important product for the USD5.5 trillion that institutions have committed to divest from fossil fuels. The key fact is this is affordable and we are hoping to have millions make modest investments backing our product. Our own cynicism about the policy arena has led us to do something powerful using Wall St as an activist tool, which feels absolutely right in 2017.”

Rodriguez explains that they built the ETF in a diversified way, doing what he calls ‘a compliant tap dance on the West coast’, with the ETF designed to match the S&P 500 in terms of performance. Sectors they do not hold include energy and utilities who still burn fossil fuels.

The ETF was designed to have a tight correlation to the S&P 500 and a few days in trading appears to be holding its own in terms of performance. Fees are currently 75 basis points but Rodriguez says: “We don’t expect to be there when we manage billions but it allows us to do what we want to do. We are the first ETF doing shareholder advocacy and activism so there is a lot of extra work because a lot of people want to be involved.”

“We are the first finance company built by women and millennials designing products for women and millennials, supported by impressive men,” Morton says, citing the statistic that 71 per cent all women who have wealth look for wealth managers who offer something different in terms of strategies.

“Women are keenly involved in managing their money and we like empowering people who have been left out of financial decision making and make it exciting, enabling them to touch the world with the money in a way that reflects their own integrity.”
 
 

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