Change Finance is a newly registered investment advisor (it incorporated in June) with big plans, the first of which went live on Tuesday with the launch of the Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free ETF (CHGX). The fund’s long name matches its large ambitions to be an all-encompassing fund regarding its socially responsible investing (SRI) mandate.
The fund tracks the Change Finance Diversified Impact US Large Cap Fossil Fuel Free Index composed of 100 equal-weighted, U.S. large cap companies. It excludes companies involved in the fossil fuel industry, fossil-fired utilities and companies that fail to meet high environmental, social and governance (ESG) standards for human and labor rights, health, climate and pollution.
The index was developed by Change Finance, a majority woman-run activist finance think tank. The company says its four-member team has more than 80 years of collective experience working with corporations and governments on sustainability issues. Some of its members previously worked at another RIA firm building values-based, SRI-oriented separately managed accounts for high-net-worth clients.
“We had interest from a mutual fund family to acquire our team in order to launch mutual funds and ETFs,” says Andrew Rodriguez, president of Change Finance. He adds that he and his partners aim to use finance as a tool for change, and they realized they would have more impact if they could scale up their operation.
“That’s why we decided, ‘Why don’t we get crazy and jump off of this cliff and build an ETF company,'” he says.
Knowing that they knew nothing about creating an ETF, they enlisted the help of US Bancorp, Cantor Fitzgerald and others to help bring their product idea to market.
And knowing that they know something about using finance as a tool for change, the company constructed the index for the CHGX fund by starting with the 1,000 largest U.S.-listed companies and then employing the services of a German company called Oekom that measures about 5,000 companies on 700 different metrics around people and planet.
From there, Rodriguez says, they focused on a variety of sustainability criteria that had to be met for companies to be included in the index. Among them are a company’s environmental impact; whether a company has a history of controversial business practices relating to human rights, labor rights, environmental protection, or business malpractice; and human impacts pertaining to areas such as hiring practices related to diversity and supply chain standards.
“We’re setting a new bar that says you have to be good at all of it at the same time,” Rodriguez says, adding that some socially responsible ETFs that focus on one particular area might be less stringent in other areas that matter to values-oriented investors.
As of Sept. 10, the index’s top five holdings were Micron Technology, Abbvie, Applied Materials, Intel and MetLife. The index is reconstituted quarterly.