The ESG in ETFs for Russell Investments

Russell Investments has launched a global equities sustainable active ETF in response to adviser demand.

The Russell Investments Sustainable Global Opportunities Complex ETF (RGOS) is the firm’s first global equities ETF in Australia.

In the latest episode of Relative Return, director and senior portfolio manager, APAC, James Harwood said the firm has “seen a lot of demand” from advisers for sustainable solutions.

“A lot of that cohort are looking for a solution that has a balanced set of risks. When you start to invest with a sustainable lens, you’re often introducing unintended risks within a portfolio and that’s driven by exclusion.

“We’ve launched this global equity solution that leverages off our core capabilities across Russell, and we’re able to build a really smartly designed global equity solution with a sustainability lens.”

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There was a growing interest in ESG vehicles, Harwood said, after a temporary lull caused by the war in Ukraine. This saw oil and gas stocks spike and ESG funds, which typically excluded those types of stocks, lagged the market which deterred investors from choosing a fund of that type. 

The cost of living also meant some investors are more focused on achieving the highest financial returns rather than from an ESG criteria. Research from Adviser Ratings found Australians are keeping their sights set on safeguarding wealth as opposed to focusing on responsible investing, with a survey of 2,100 Australians finding only 38 per cent are considering ESG factors in their investment.

“This figure is indicative of a broader sentiment shift among consumers who are increasingly prioritising immediate financial stability and long-term wealth protection over ESG considerations in a cost-of-living crisis,” Adviser Ratings said.

“2022 burnt some advisers and investors,” Harwood said. “We’re kind of past that shock now, and people are diving back into ESG sustainable solutions and Australian investors want an environmental-style solution. Managers are selecting stocks that are increasingly aligned to net zero and I think that has appealed to a growing set of investors in Australia.”

He also touched on how Russell manages the ETF to take into account ASIC’s focus on greenwashing and avoiding any misleading statements or labelling, given several funds have already come under the regulator’s scrutiny.

“It’s definitely a requirement to have clear product labelling. There’s been a lot of time that’s been put into getting the product labelling right for our ETF. The bar has been raised to create sustainable products and we spent a lot of time on the labelling of this product to make sure that it’s very clear what it’s designed to do.”