Will Goldman Sachs’ JUST index fund ‘infect the host’?



In June, Goldman Sachs Asset Management launched a new exchange-traded fund with the ticker JUST to capitalize on investor interest in sustainability and ESG (for environmental, social and governance) performance.

And indeed, JUST ended its first day of trading on the NYSE Arca exchange with $251 million in assets, making it one of the most successful equity ETF launches ever.

Now, an investigative report has taken to task Goldman Sachs, which supervises approximately $1.3 trillion in assets, for its record of proxy voting on shareholder resolutions at companies in the JUST portfolio, which tracks an index created by the nonprofit JUST Capital.

The firm has been using its existing stakes in many JUST fund companies to help CEOs block key environmental and social justice reforms proposed by their shareholders,” write Chase Woodruff and David Sirota, the authors of the investigation.  The report, “Is Goldman Sachs’ new fund really just greenwashing stocks?” was conducted by the nonprofit news site Capital & Main and published in The Guardian.

The controversy highlights an emerging issue as more mainstream financial institutions: How firms that tout the “impact” portion of their portfolios can be held to account for all of their investments.

The Impact Alpha: ‘Hybrid’ investors seek the alpha in impact

Conventional wealth managers like Goldman, BlackRock, JP Morgan, UBS and Credit Suisse, along with private-equity giants like TPG, Bain and KKR, are the fastest-growing category of impact investors, according to this year’s survey by the Global Impact Investing Network. As many as 75 of such “hybrid” investors reported $88 billion in impact assets, a big chunk of the $228 billion in total assets the GIIN found in the survey.

But that capital is only a tiny fraction of those firms’ total assets, as is the JUST ETF within Goldman Sachs. Inside such hybrids, new impact products and funds will live alongside conventional investments, which the GIIN defines as those without explicit impact intent. Over time, that will make clear not only comparative client demand, but financial performance—and impact.

As of June, the JUST index would have outperformed the Russell 1000 by 3.47% over the past two years. According to JUST, the companies in the fund would also have paid fewer fines for consumer violations and Equal Employment Opportunity Commission violations, produced lower greenhouse gas emissions and created more American jobs than the Russell 1000 more broadly.

“The logic worms its way into the machine, the virus infects the host,” I wrote in my column in May.

The Impact Alpha: Agents of impact start to infect their hosts

The Capital & Main report essentially takes Goldman to task for the way it votes the shares held by its other funds in companies included in the JUST ETF. The newly launched JUST fund has not yet voted its shares. (The report said Goldman Sachs had declined to comment on the process by which its equity funds vote on shareholder proposals, and how that process may differ with the JUST fund.)

JUST Capital was co-founded by hedge fund billionaire Paul Tudor Jones II and selects companies for its JUST U.S. Large Cap Diversified Index (JULCD) based on their ratings across issues like worker pay and well-being, customer treatment and privacy, beneficial products, the environment, job creation and strong communities, which it identifies through polling of the American public. It is comprised of the top 50% of companies in the Russell 1000 for each industry.

Part of JUST Capital’s charitable mission is to incentivize just business behavior by using the power of private capital as a lever of change,” JUST’s Martin Whittaker told ImpactAlpha in an email exchange. “We are excited that Goldman launched the JUST ETF so that investors can easily invest in just companies and we believe the fund’s existence will generate broader interest in JUST Capital’s mission.” A portion of the fund’s fees go to JUST Capital to support the nonprofit’s work.

Relative rankings

The emergence of indices like JUST also invites scrutiny of the criteria under which a company is considered “just” or sustainable. Capital & Main’s review of corporate documents “shows that some of Just’s largest investments are in fossil fuel firms that have been sued for suppressing global climate research, Wall Street behemoths fined for defrauding investors, a social media platform accused of helping rig elections and a tech industry giant criticized for paying its workers starvation wages.”

Whittaker said that for the companies cited – Exxon, JP Morgan, Amazon and Goldman Sachs itself – “negatives are counterbalanced by areas of strength” in other components of the rankings, which are weighted by the views of the public as shown by the polling. “Unique events” that are the result of a company’s action or inaction are assessed, and rankings are adjusted accordingly, he said.

For Exxon, for example, a class action suit alleges that Exxon breached its fiduciary responsibility to investors based on its evolving assessments of climate risks. “Unless the courts rule against Exxon, this issue would most likely not be picked up in our model as investor fraud,” Whittaker said. JUST’s site shows that Exxon already scores low for “Environment,” which makes up 15% of the model, ranking 37th in its industry.

JP Morgan similarly has a low score for “Management & Shareholders,” which represents 6% of the model. The bank ranks 30th in its industry.

The election manipulation on Facebook’s platform was not captured in JUST’s 2017 rankings model. “We did an analysis at the time as these issues came to light and found Facebook already received the lowest possible score for the “Protects Customer Privacy” component, which represents 4.6% of the model, based on earlier issues involving user data privacy. Facebook’s overall “Customers” score ranked it 8th, or last, in its industry.

Amazon ranks 8th for its industry for “Pays a Living Wage” and 4th for “Pays a Fair Wage for Industry and Job Title.”

As for Goldman Sachs itself, the Justice Department fine is captured by JUST’s “Follows Laws and Regulations” component “where it gets one of the lowest scores due to the size of the fine, even scaled for the size of the company,” Whittaker said. That is partly offset by “Makes a Profit Over the Long Term” and “Provides Investor Return.”

Overall, JUST’s website shows that Goldman Sachs has a low Management & Shareholders score. “Overall, Goldman does well on most other Issues, most notably Workers and the Environment,” Whittaker said, where they rank first in their industry.

Financing fossil fuel industry, and thus indirectly funding pollution, has not come up in JUST’s polling, so is not included in the model.

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