SOCIALLY RESPONSIBLE INVESTINGHOW TO PROFIT FROM YOUR PRINCIPLES

Given the social and environmental challenges increasingly facing our planet, many investors are naturally concerned about not only achieving decent portfolio returns, but also ensuring the companies they invest in are socially responsible and climate friendly.

DAVID BASSANESE, BETASHARES CHIEF ECONOMISTJULY 2017

Indeed, for many of us it’s nice to know our investment funds are not being directed toward activities inconsistent with our values - such as, for example, fossil fuel production, animal cruelty, worker exploitation, or the production of tobacco, alcohol or firearms.

The good news, however, is that thanks to changes in technology, regulation and consumer preferences, many of today’s most environmentally and socially responsible companies also offer the potential to be good investments in their own right.

“It’s nice to know our investment funds are not being directed toward activities

inconsistent with our values”

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In response to growing investor demand for greener and more socially responsible investment options, the financial industry has already seen strong growth in so-called “ethical” investment funds. Currently, however, there is no clear agreement among investment managers over what constitutes an ethical or environmentally friendly company. Indeed, several so-called ethical funds marketed to Australian investors, still include fossil fuel producers, while others still include companies engaged in gambling or alcohol related activities.

What’s more, many ethical funds still place a high priority on actively selecting stocks with the aim of beating investment benchmarks. This can result in higher management fees and greater focus on smaller-cap stocks which are both riskier and have less ability to influence overall global corporate culture than large-cap stocks.

By contrast, as outlined in the following diagram, the BetaShares Global Sustainability Leaders ETF (ASX code ETHI) provides a transparent, true-to-label, cost-effective and easy-to-access ethical investment option, which is focused on 100 globally influential large-cap stocks. ETHI is transparent, in that its stock selection is based on objective and quantifiable criteria wherever possible, and actual stock holdings are available daily on the BetaShares website.

ETHI is true-to-label, with a stringent environmental and socially-responsible screening methodology. For starters, due to their positive global influence, ETHI only considers investments in large-cap stocks from developed economies that are objectively rated as ‘climate leaders’ in their respective industry. ETHI then excludes any companies significantly engaged in a range of activities that are deemed inconsistent with “responsible investing” – such as fossil fuel production, gambling, tobacco, armaments, and alcohol. ETHI also excludes companies that have human rights / supply chain concerns with regard to their treatment of workers. Having found companies that meet all these stringent tests, ETHI then invests in the largest 100, weighted by their market capitalisation.

Buyer beware: Some current “ethical” funds aren’t true to label

The BetaShares alternative

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By adopting a rules-based stock selection strategy, ETHI is cost effective, with management costs of no more than 0.59% p.a, or $59 per year for every $10,000 invested.

Finally, ETHI is easy-to-access and invest in. ETHI can be bought or sold like any share on the ASX. If you are set up to buy shares, you are set up to buy ETHI! As a result, there is no minimum investment amount required by BetaShares and, as long as you are set up to buy shares, you can buy ETHI without any further paperwork.

The Screening Process for the BetaShares Global Sustainability Leaders ETF (ETHI)

• Developed economies only

• Must meet minimum market cap and liquidity requirements

• Either have a direct carbon impact at least 60% below their industry’s average, or

• otherwise engaged in activities that can significantly help avoid carbon use by other industries

• No fossil fuel producers

• No companies significantly engaged in armaments, gambling, alcohol or junk foods

• No companies with human rights/supply chain issues

Large cap Universe

“Climate leaders”

Socially & environmentally

acceptable

Largest 100 remaining stocks

by market cap

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Below are some examples of companies that are included within ETHI’s portfolio. As you can see, they are large, profit-seeking organisations that are still caring for the social and environmental well-being of the planet.

Apple

Apple is one of the world’s largest companies, best known for its computers and mobile devices. Apple has shown leadership on best practice supply chain with Baptist World Aid’s Behind the Barcode report giving Apple the equal highest score for an electronics company. The company has also led on other environmental initiatives, including elimination of mercury, lead, brominated flame retardants, arsenic, and phthalates in all products in advance of any regulatory requirements, as well as the near elimination of PVC.

First Solar Inc

First Solar manufactures solar panels and provides supporting services for photovoltaic power plants including financing, construction, maintenance, and panel recycling. To date, the company has sold over 13.5 gigawatts of solar generated electricity and financed and facilitated projects worth more than $11bn.

Industria De Diseno Textil SA

Industria De Diseno Textil is a Spanish company better known as Inditex. It is the world’s largest fashion group with over 5000 stores with its most well known brand being Zara. The company has scored an A grade in Baptist World Aid’s Behind the Barcode Fashion Report in 2016. Inditex has made commitments to be fur free, angora free, and to have zero discharge of hazardous chemicals.

Some examples of what ETHI invests in

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As noted, leading global companies with good social and environmental records are increasingly being rewarded in the marketplace by consumers and investors alike. Accordingly, as seen in the chart below, the index which ETHI aims to track has historically tended to show superior longer-term performance compared to the world’s major global equity benchmark.

This means that investors are able to consider investing in socially responsible companies without necessarily sacrificing returns.

Many investors today are increasingly demanding in terms of what they expect from a company. Not only should a company be able to deliver decent returns to shareholders, it should also provide those returns whilst paying due regard to the social and environmental consequences of its actions. To help in picking companies best able to meet these dual demands, investors are also seeking out the services of professional investment managers.

To date, however, some so-called “ethical funds” suffer from often narrow and inconsistent screening approaches, along with high management fees and a focus on less globally influential and riskier smaller-cap stocks.

By contrast, the Betashares Global Sustainability Leaders ETF (ETHI) offers a transparent, true-to-label, cost-effective and easy to access means by which investors can gain exposure to the world’s most influential large-cap companies with positive social and environmental records. Being exchange-traded, this exposure can be obtained just as easily as buying any share on the ASX.

ETHI’s Index v MSCI World ex-Australia (in AUD): to 30 June 2017

Good return potential with a good conscience

Conclusion

Source: Bloomberg. The Index which ETHI aims to track is the Nasdaq Future Global Sustainability Leaders Index. You cannot invest directly in an index. The inception date of the index is 29 April 2011. Performance shown is of ETHI’s Index, not ETHI, and does not take into account ETHI’s management costs. Past performance is not an indication of future performance of the Index or the ETF.

Socially Responsible Investing BetaShares 7

There are risks associated with an investment in the

Fund, including market risk, international investment

risk, non-traditional index methodology risk and foreign exchange risk.

For more information on risks and other features of the Fund please see the Product Disclosure

Statement.

Learn more about BetaShares

BetaShares is a leading manager of ETFs and other Funds that are traded on the Australian Securities Exchange (‘ASX’). Our aim is to provide intelligent investment solutions for Australian investors.

Visit our website and explore our full range of Funds that can help you achieve your financial objectives.

Important Information:

An investment in any BetaShares Exchange Traded Fund (‘ETF’) is subject to investment risk including possible delays in repayment and loss of income and principal invested. Neither BetaShares Capital Ltd (“BetaShares”) nor BetaShares Holdings Pty Ltd guarantees the performance of any ETF or the repayment of capital or any particular rate of return. Past performance is not an indication of future performance. This information is prepared by BetaShares Capital Ltd (ACN 139 566 868 AFS licence 341181) (“BetaShares”), the product issuer. It is general information only and does not take into account your objectives, financial situation or needs so it may not be appropriate for you. Before making an investment decision you should consider the product disclosure statement (‘PDS’) and your circumstances and obtain financial advice. The PDS is available at www.betashares.com.au or by calling 1300 487 577 (within Australia) or +61 2 9290 6888 (outside Australia). Only investors who are authorised as trading participants under the Australian Securities Exchange (ASX) Operating Rules may invest through the PDS. Other investors may buy units in the ETF on the ASX through a stockbroker, financial adviser or online broker. This document does not constitute an offer of, oran invitation to purchase or subscribe for units or to adopt any particular investment strategy. This information was prepared in good faith and to the extent permitted by law BetaShares accepts no liability for any errors or omissions or loss from reliance on any of it. BetaShares® and Back Your View® are registered trademarks of BetaShares Holdings Pty Ltd.

NASDAQ®, OMX®, NASDAQ OMX®, and Nasdaq Future Global Sustainability Leaders Index™, are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by BetaShares. The Fund has not been passed on by the Corporations as to their legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. www.betashares.com.au