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Sep 22, 2017

Three socially responsible ETFs to be listed on Tokyo Stock Exchange

Gender diversity currently one of the biggest ESG themes 

Japan Exchange Group has approved the listing of three socially responsible exchange-traded funds (ETFs) created by Daiwa Asset Management on Tokyo Stock Exchange.

The ETFs, which will be listed on September 26, are the Daiwa ETF MSCI Japan Empowering Women Index, the Daiwa ETF MSCI Japan ESG Select Leaders Index, and the Daiwa ETF FTSE Blossom Japan Index.

The Empowering Women Index ETF is tied to the MSCI Japan Empowering Women Index, which aims to represent the performance of companies that are leading within their sector groups in terms of promoting and maintaining gender diversity, while also meeting certain quality criteria. According to MSCI, companies that promote and maintain gender diversity among their workforce may be better able to ride out talent shortages and generate more sustainable performance with reduced risk.

The ESG Select Leaders Index ETF is intended to represent the performance of companies that have a high level of ESG performance. It seeks to target sector weights that reflect the relative sector weights of parent index the MSCI Japan IMI Top 500 Index, which is intended to limit the risk introduced by the ESG selection process. The ESG Select Leaders Index targets coverage of 50 percent of the parent index.

The FTSE Blossom Japan Index is designed to help identify and measure the performance of Japanese companies that demonstrate strong ESG practices. It is constructed to be industry-neutral, and uses the FTSE4Good Index Inclusion Rules, which are based on existing international standards, such as the UN Sustainable Development Goals.

ESG-related funds and investing strategies have become increasingly popular. According to a survey from BNP Paribas Securities Services, nearly 80 percent of asset managers and owners incorporate ESG factors into their decision-making. And in July, Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, said it would move approximately $8.8 bn, or 3 percent of its passive domestic equity investments, into ESG indices.

Hortense Bioy, European head of passive fund research at Morningstar, says: ‘The launch of these three ETFs is a natural development in the Japanese ESG-related investment space after the great success of Nikkei 400 funds. Created in 2013, the Nikkei 400 index screens companies according to their profitability, shareholders’ return and superior corporate governance.

‘Gender diversity is one of the biggest ESG themes at the moment globally, and especially in Japan, where the lack of women in the workforce is a well-known problem and one that is currently being tackled by Shinzō Abe’s ‘third arrow’ of reforms to revitalize the economy.

‘The breadth and sector neutrality of the MSCI ESG Select Leaders and the FTSE Blossom Japan indices make the two Daiwa ETFs tracking them adequate substitutes for mainstream market-cap index-tracking funds.’