More are beginning to align personal beliefs with their investments through exchange traded funds that adhere to socially responsible investing.
For instance, investors seeking to invest in companies that have a smaller impact on the global environment would typically follow characteristics described under sound ESG or environmental, social and governance principles, such as the SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) and the iShares MSCI ACWI Low Carbon Target ETF (NYSEArca: CRBN).
LOWC and CRBN both target the MSCI ACWI Low Carbon Target Index, which tries to address carbon exposure by overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, compared to the broader market. Both ETFs were created for the U.N. Joint Staff Pension Fund.
Investing in ESG principles is a good way to help manage portfolio risks. Academic research reveal that strong governance mechanisms have helped diminish default risk and lower bond yields. Barclays also recently discovered that investment-grade bonds with higher ESG scores outperformed those with low ESG scores over the past 8 years.
“Companies that focus on sustainability and impact management have historically shown the ability to create a stronger long-term enterprise,” Michael Allison, Equity Portfolio Manager at Eaton Vance, wrote in a note.