State Street Global Advisors SPDR S&P 500 Fossil Fuel Reserves Free ETF

overall Rating:

0.75

planets

Sam Barrie
4/26/2021
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State Street Global Advisors is the asset management division of State Street Corporation. The firm holds over $3.59 trillion in assets and created the world’s first exchange traded funds (ETFs). They are the fourth largest asset manager and are thus very influential in the financial sector. By the title of this ETF, it sounds like you are making a clean sustainable investment; however, this is not the case. This fund is invested in the same companies as the S&P 500 except for the ones that own fossil fuel reserves. This means they only eliminated 2.4% of the 500 companies in the stock. The fund does not remove companies that derive their energy from non-renewable sources, only ones that specifically own the reserves. This fund is not close to being considered sustainable.

what it's made of:

0.5

The SPYX fund is composed of 488 holdings with the top ten holdings constituting 27.69% of the ETF. This fund contains all the holdings of the S&P 500 except the companies that own fossil fuel reserves. People invest in the S&P 500 for various reasons with the main purpose being diversification and the opportunity to minimize risk. This fossil fuel reserves free fund, allows investors the same option as other S&P 500 index funds except with the bonus of minimized risk towards non-renewable energy. Because this fund has nearly all the same holdings as the S&P 500, it is a well diversified ETF. It covers a broad range of market sectors with the top being Information Technology at 27.79%. The top 4 holdings include Apple (6.1%), Microsoft (5.67%), Amazon (4.19%), Facebook (2.12%), and Alphabet (1.98%). The fund focuses on US large cap equities, so that is why you see large corporations like the ones listed above. 

This fund’s focus on large-cap stocks concerns me because large corporations seem to be the most problematic when it comes to sustainability and GHG emissions. Overall, this fund reminds me of the iShares ESG MSCI USA Leaders ETF (see that review for more info.). Both ETFs focus on large-cap stocks, which is fine other than the fact that these companies are on very different spectrums when it comes to sustainability and environmental preservation. This SPYX fund is also invested in Johnson & Johnson just like the SUSL fund. In that review, I gave the same example of how Microsoft has been carbon neutral since 2012 and plans to be carbon negative by 2030. Johnson & Johnson on the other hand, has only reduced their carbon footprint by 15% in the last ten years. This shows the companies being held in the ETF are at very different points when it comes to environmental preservation. 

State Street has several ESG funds, but they have not been rated. There are no sustainability ratings on this fund which is unfortunate because it means investors have to do their research to determine how sustainable it is and its risk towards climate change. 

how it's made:

0.25

For an ETF to be classified as ESG focused, it must meet certain criteria as set by the entity preparing the fund. State Street has 3 main approaches for ESG integration. The first is Active; through this, State Street looks at qualitative and quantitative ESG information to guide the investment decision-making process. Next is the Index; here, they look at the “integration of ESG issues into alternative-weighted ESG indices.” They make sure a fund takes into account the ESG issues of that company or country. Lastly, there is the SmartBeta approach; here, they identify correlations between ESG factors and price. They do this to reduce a portfolio’s risk or generate alpha (create a higher return as compared to the index the fund is tracking). The main problem with these approaches is they look at a fund’s risk towards ESG issues. They don’t specifically choose companies that are actively fighting the problems, they choose ones that are not as affected by them. This is the case with almost all ESG labeled funds. Unfortunately, until these approaches are changed, an ESG labeled fund does not mean someone is investing in a sustainable fund. 

The SPYX fund in particular is invested in all the S&P 500 companies except for ones that own fossil fuel reserves. This may sound like a clean investment, however, that only equates to 12 companies out of 500. Additionally, the fund does not eliminate companies that acquire their energy from non-renewable sources. I would be very surprised if not at least 75%-100% of these holdings derive some or all of their energy from non-renewable sources. Yes, eliminating companies that own fossil fuel reserves is a good step, but it's a small step at best. To encourage a truly sustainable investment, this fund should at least set a maximum amount of non-renewable energy a company can use for its practices. Any company that is above that standard should be withdrawn from the ETF. This practice would move the ETF in a more sustainable direction.

who makes it:

1.5

State Street Global Advisors is focused on being a diverse and equitable workplace. They believe diversity contributes to better decision-making and overall company performance and thus have created several initiatives that work towards various social goals. Just like many other companies, SSGA has created multiple employee networks to help foster an inclusive workplace and has created training programs to work towards reducing unconscious bias. In March 2017, on the eve of International Women’s Day, SSGA released the Fearless Girl Statue in the heart of the Financial District in New York. This statue was set to raise awareness about the importance of gender diversity in the corporate atmosphere. The statue was meant to be a pivotal moment in breaking the ‘glass ceiling’, and in many ways it was. However, SSGA received backlash later that year after it was discovered that they were paying a $5 million settlement due to the underpayment of women and African Americans in senior management positions. This hurt their reputation, but they have still strived towards creating gender equality throughout the corporate world. In April 2021, Lori Heinel became the first female Global Chief Investment Officer (CIO) of SSGA, a huge step for an industry primarily dominated by men. In 2021, SSGA received a score of 100 (out of 100) on the Human Rights Campaign’s Corporate Equality Index. This index scores companies based on their policies, practices, and benefits of LGBTQ employees and it is the national benchmarking index for LGBTQ corporate equality. SSGA also received a score of 100 on the Disability Equality Index. This index is the main source of rating a firm’s disability equality, and they also help identify areas for improvement. Overall, it seems like SSGA is working towards becoming a more diverse and equitable organization. They still have progress to be made, but they have solid goals for advancement as of now.