Rize Environmental Impact 100 (first established in July 2021) is an Exchange Traded Fund replicating performance of the Foxberry SMS index and investing in securities with positive environmental impact. After consideration, I gave it a sustainability rating of 1.5. Pros: Its international holdings and broad spread across industry sectors limits risk and volatility, thus incentivizing the average risk-averse investor. The holding selection process, based on EU taxonomy, enhanced ESG rating and Rize company listings, seems solid in preventing greenwashing. Cons: the negative records that some of the holdings (Svenska and Aecom) have in sustainable operations/management is a cause for concern, especially seeing the high holder weight they both have. This detail significantly brings down the otherwise quite rigorous, diversified and ESG aware nature of the ETF.
Rize Environmental Impact ETF has a net assets value of 14.981.368 USD, distributed over 99 holdings as of 09/02/2022. The top ten holdings (Azure power global, 1.35, Klabin, 1.32, Sao Martinho, 1.32, Svenska Cellulosa, 1.32, Stantec, 1.3, Meridian Energy,1.3, Weyerhaeuser Co, 1.29, Aecom, 1.28, BTS GRP. Holdings, 1.27, Valeo, 1.25) are comprised of international companies. This allows for a broad exposure of equity holdings to developed and emerging markets, which incentivizes the average risk-averse investor. In terms of ESG scores, these companies are cumulatively placed in the ‘Medium risk’ category- the fund could, therefore, do better. A big cause for concern is the record that some of these companies have with unsustainable practice: for instance, Svenska Cellulosa (a Swedish timber and paper manufacturer) has been found by the Swedish Society for Nature Conservation (SSNC) to engage in forest-depleting timber logging, while a U.S lawsuit was filed against Aecom in 2016 for false claims on spending for Hurricane Katrina disaster relief. It would be an over-stretch to say that this evidence weakens the overall sustainability of the ETF, however it does raise concern on how the holding companies might operate their revenue in the future.
Having said this, a good thing about the ETF is that it is spread across diverse industry sectors (Clean Water, Energy efficiency solutions, circular economy, Renewable Energy Equipment Manufacturers, Electric Vehicles and Green Transport), which reduces volatility and risk by diversifying the portfolio, and thus encourages investment. By allocating big proportions of the fund to clean water (19%) and energy equipment or strategies, rather than more fluctuating securities (i.e clean energy), the ETF combines financial stability with an effort to address sustainability and global development.
The holding selection process of Rize ETF deserves a high sustainability mark (withstanding the concerns on past performance of some of the holdings, for which the ETF cannot respond). To select constituents, Rize ETF uses the Foxberry SMS Environmental Index, which picks the ‘greenest’ companies based on EU taxonomy scoring methods. It considers both the Green Revenue score, selecting only those stocks with a score higher than 50%, and the Environmental Impact Score (an enhancement of ESG). Further, eligible fund constituents are run through the “Rize Future First Exclusion List”, an additional screen provided by the fund managers to exclude non-compliant ESG companies from selection. The selection criteria and processes are reviewed bi-annually, and the constituents of the ETF are required to produce periodical ESG disclosure according to the Sustainable Finance Disclosure Regulation (SFDR). This multi-layered selection and monitoring process, which combines EU taxonomy, index management expertise, and Davy’s personal connection to companies appears rigorous and solid to mitigate the risk of constituent greenwashing. The Rize ETF website offers ample and transparent evidence of its selection process, which is commendable.
Rize ETF is managed by Davy Global Fund Management Limited, an asset management company based in Dublin. Through their website, the company seems truthfully committed to integrating ESG in their strategies; it strongly emphasizes the necessity for good corporate governance, for example through transparent proxy voting. The portfolio manager for the Dublin office, Brian Kennedy, is habitually involved in climate change investing events and webinars and appears very aligned to EU and US climate investment regulation. Kennedy has always worked on sustainable global equity portfolios and was nominated for Best Ethical Fund in the 2016 Sustainable Investment Awards, which indicates dedication to, and professionality in sustainable management. However, information on portfolio managers and social diversity at Davy are difficult to find. In particular, Davy must improve on the diversity of its executive board, both in terms of age and nationality distribution (all members are senior Irish citizens). Having a more diverse board and company could boost the sustainability prospects of Davy, with important implications for the funds they manage.