Brigid Kosgei has recently obtained a degree at UTS. Her achievement was not only celebrated within her family but also by her wealthy aunt, who gave her a generous gift of $10,000. This gift came with a unique directive – it must be invested in an Australian Exchange Traded Fund (ETF), a financial instrument that would potentially lay the foundation for Kosgei’s financial growth.

Kosgei has a basic knowledge of investments and besides her modest superannuation, she does not have any other significant financial assets. She is not interested in actively speculating in the share market. Instead, she aspires to make a secure investment, allowing her money to mature over a span of several decades, demonstrating her foresight and long-term planning. What sets Kosgei apart is not just her financial sensibility, but also her deep-seated passion for solving environmental and social issues. With aspirations of making a meaningful impact on society, she stands on the verge of launching into a rewarding career as an Ethical Sourcing Manager. This profound connection to environmental and social issues is fuelling her curiosity about the ethical dimensions of investments.

Before she commits her aunt's gift to an ASX listed ETF, Kosgei recognises the importance of aligning her investment with her values. Her interest in environmental and social issues leads her to explore the landscape of sustainable ETF investments available on the ASX. She is not content with merely growing her wealth; she also wants to ensure that her investment will have a positive impact on the world. In her quest for ethical investment opportunities, Kosgei undertakes thorough research. She scrutinizes several ASX listed ETFs, seeking those that champion ethically responsible practices. Her investigation extends beyond financial metrics to encompass each ETF's commitment to social responsibility, ethical governance, and carbon footprint reduction.

Sustainable Investing
Kosgei starts her analysis by firstly exploring a definition of sustainable investing. At its core, sustainable investing revolves around channelling capital into companies that proactively contribute to environmental preservation, social betterment, and robust governance practices – collectively referred to as Environmental, Social, and Governance (ESG) performance. Kosgei's research leads her to comprehend that sustainable investing is not a singular approach, but a spectrum of strategies. These range from exclusionary tactics (avoiding investments in industries deemed harmful) to inclusionary tactics (actively selecting companies with exemplary ESG practices). This nuanced understanding empowers her to appreciate the diversity within sustainable investing, offering flexibility to align her $10,000 investment with her specific values.

Exchange Traded Funds (ETFs)
Having grasped the concepts of sustainability and sustainable investments, Kosgei's attention now turns to researching ETFs. She recognises that diversification is a fundamental principle of investing. Diversification involves spreading investments across various assets to manage risk and potentially enhance returns. Diversification encompasses geographical considerations – international and domestic markets – and a broad range of industries. ETFs, which aim to replicate specific indexes or benchmarks, offer Kosgei an efficient way to achieve this diversification, enabling her to access multiple international shares in a single investment.

ETFs are pooled investments that give investors access to a diversified collection of shares, purchasable on the Australian Securities Exchange (ASX). ETFs mirror shares' ease of trading, attainable through authorised trading platforms. Mainly passive investments, ETFs typically do not strive to outperform the share market. Instead, they shadow an index that serves as their performance benchmark. Kosgei's research also extends to understanding the unique merits of ETFs over other investment vehicles. She unravels their attributes, which include lower management fees, transparency, and the capacity to be traded throughout the ASX market hours.

In her pursuit of ETF knowledge, Kosgei seizes the opportunity to further educate herself through online courses. Two ETF courses stand to enrich her insights, enabling her to grasp the nuances of ETFs, from their creation and operation to their role in diversified portfolios. These courses solidify her comprehension of ETFs, amplifying her capacity to make an informed investment decision that aligns with her financial objectives and her passion for environmental conservation.

Global Sustainability Leaders ETF (ETHI)
Fuelled by her commitment to sustainability, Kosgei is excited to discover a promising investment opportunity on the ASX: the Global Sustainability Leaders ETF (ASX: ETHI). Founded in 2009, Beta Shares Capital Limited is an Australian Investment Management Firm specializing in ETFs. Their expertise and focus on ETFs enhance ETHI's credibility, aligning with Kosgei's dual goals of financial growth and sustainable investment. Kosgei also notices that ETHI has been certified by the Responsible Investment Association Australasia (RIAA) according to disclosure practices required under the Responsible Investment Certification Program. RIAA actively promotes investments that align with achieving a sustainable society, environment and economy.
Kosgei's meticulous research into sustainable investing reveals that ETHI operates in a dynamic market alongside two significant contenders, each vying to address investors' growing interest in sustainability. These competitors offer alternative pathways for environmentally conscious individuals like Kosgei to align their investment choices with their values.

• VanEck MSCI International Sustainable Equity ETF (ASX: ESGI)
• Vanguard Ethically Conscious International Shares Index ETF (ASX: VESG)

 

Conduct a critical evaluation of the regional and industry (sector) allocations of ETHI, ESGI, and VESG, comparing their diversification across global regions, and providing insights into their exposure to different industries.

Additional Guidance: Compare the regional and industry allocations of the three ETFs by considering the geographical distribution of assets and sector exposures. Highlight the differences between these ETFs in terms of their invested regions and industries and provide comprehensive insights into the potential implications for risk and opportunity.

Answer rating: 100% (QA)

To conduct a critical evaluation of the regional and industry sector allocations of the ETFs ETHI ESGI and VESG we need to consider their geographical ... View the full answer