“The longer an investor’s time horizon, the more climate-related risks compound,” according to BlackRock. “Yet we see long-term investors also as better positioned to invest in new technologies that take time to bear fruit. And short-term investors can be affected by here-and-now regulatory developments and other near-term risk.”
Investors can target companies with a socially responsible mindset through ETFs, including the iShares MSCI USA ESG Select Social Index Fund (NYSEArca: KLD) and iShares MSCI KLD 400 Social ETF (NYSEArca: DSI), which provide broad exposure to companies with socially responsible characteristics.
KLD and DSI both include stocks with strong environmental, social, and governance records in areas that are relevant to their industries, including carbon emissions, labor management and corporate governance. KLD, though, excludes companies operating in the weapons, alcohol, gambling, nuclear power, adult entertainment and genetically modified organisms industries.
Additionally, strategies that revolve around Economic, Social and Governance, or ESG, principles have been quickly gaining traction as investors and advisors incorporate the qualitative benefits of ESG investments into their portfolios. For instance, the recently launched iShares MSCI EAFE ESG Select ETF (NasdaqGM: ESGD) and iShares MSCI EM ESG Select ETF (NasdaqGM: ESGE), which track developed and emerging market companies with high ESG ratings, began trading at the end of June.
SEE MORE: Do ESG Strategies Benefit ETF Investors?
With these socially responsible parameters, companies may be taking on a long-term business model. In an attempt to head off any environmental and social problems that their operations may create, companies are able to obviate potential regulations and diminish political risks ahead. Moreover, this proactive approach may diminish the risk of conflict with nongovernment organizations and other advocacy groups that can affect sales and brand recognition.
For more information on incorporating climate-change awareness themes, visit our socially responsible ETFs category.