In another expansion of investment options for sustainability-focused investors, Legal & General Investment Management (LGIM) announced today the launch of three ESG-screened Quality Equity Dividend ETFs. The new funds are designed to satisfy investor needs for income, while avoiding key risks including ESG factors.

The three new funds, L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF, L&G Quality Equity Dividends ESG Exclusions Europe ex-UK UCITS ETF, and L&G Quality Equity Dividends ESG Exclusions Asia Pacific ex-Japan UCITS ETF, each follow FTSE Russell indices, with proactively designed index investment strategies, which have been tailored for investors by LGIM and FTSE Russell.

According to LGIM, the ETFs have been designed to provide income in an environment in which mainstream bond yields are at or near all-time lows, while satisfying investor requirements for capital preservation. The ETFs’ methodology applies a set of three systematic screens for dividends, quality and ESG exclusions, with the quality screen identifying and removing stocks with a fundamentally poor balance sheet and/or income statement characteristics, the dividend screen identifying stocks with a track record of consistent and rising shareholder distributions and the potential to sustain them into the future, and an ESG screen to exclude companies that are exposed to material financial risks based on their business models or operations.

The ESG screen applies a number of FTSE exclusion lists to the underlying stocks in the portfolios such as those in breach of the UN Global Compact, involved in manufacturing controversial weapons, and thermal-coal miners and power producers. LGIM also applies an active ownership approach with constituent companies, engaging with them on ESG concerns through the company’s Investment Stewardship team, which seeks to raise ESG standards in all holdings.

Howie Li, Head of ETFs at LGIM said:

“We apply a rigorous series of quantitative screens to select stocks based on their quality metrics, dividend characteristics, and ESG profile. We look to identify those quality companies that can sustain a consistent dividend and thus believe that this fund range is a powerful proposition for investors seeking to address their search for income, desire for growth potential, and an increasing awareness of ESG risks.”

James Crossley, Head of UK Retail Sales at LGIM, added:

“Dependable income is something investors are crying out for in the current environment, but some stocks with high dividend yields may be value traps with poor fundamentals and weak growth prospects. We believe that in giving investors exposure to a range of quality companies, with strong dividend characteristics and avoiding material ESG risks, we are well positioned to help them generate consistent income in their portfolios.”

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