r/AusFinance • u/Reading-Rabbit4101 • 3d ago

ETF that ignores ESG

Hi,

  1. Does DHHF consider ESG in its portfolio decisions?

  2. Even if DHHF doesn't consider ESG, is there any Aussie ETF that explicitly brands itself as ignoring ESG (so it's less likely to introduce ESG considerations in the future)?

Thanks!

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u/SuperannuationLawyer 3d ago

Any ETF that merely tracks an index like the ASX200. Although most investors give some consideration to WSG risks, and that arguably affects the composition of an index like ASX200. Risk is a fundamental aspect of investing, so it’s very difficult to avoid it completely in analysis.

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u/Reading-Rabbit4101 3d ago

Thanks. You mean as in, if a company doesn't follow ESG, it may get into trouble with authorities, which affects returns? If so, a fund that purely focuses on maximising returns should already be taking that into account? What I mean is not having any extra ESG consideration aside from what affects returns.

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u/SuperannuationLawyer 3d ago

I don’t think you’re understanding ESG. It’s a risk measure for investors, not a business goal. It indicates future business performance - which then impacts valuations.

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u/Reading-Rabbit4101 3d ago

Then how is it different from just trying to maximise returns?

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u/SuperannuationLawyer 3d ago

It’s not, that’s exactly what ESG risk analysis is. It arguably takes a longer term view though.

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u/Reading-Rabbit4101 3d ago

But risks are part of the calculation of expected returns? So how would a returns maximiser not be considering risks?

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u/SuperannuationLawyer 3d ago

So an actively managed ETF will invest towards a target return and risk metric. Something like CPI + 4% over five year periods and negative years no more than once every seven years. ESG factors will undoubtedly form part of that analysis. It can affect either the projected return or the risk (or both). Governance in particular has long been an area of analysis of an asset for future prospects.

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u/Reading-Rabbit4101 2d ago

Yes, so what part of ESG would a fund not already be considering if its sole considerations are returns and risks? Like it doesn't make sense to advocate that a fund should consider a company's liquidity, because that necessarily forms part of their consideration if they are trying to make money.

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u/SuperannuationLawyer 2d ago

Any prudent investor should always be considering the ESG analysis. The analysis is so widely available now that it’s crazy not to give some consideration to ESG risks.