“Combining this type of information with traditional financial analysis and security selection is a textbook example of ESG integration,” FlexShares said.
[related_stories]Investors may look at ESG investments as those that identify key indicators that would significantly impact the risk-to-return profile with a strong predictability. Some KPIs have exhibited significant impact on the long-term sustainability of a firm’s business model and share price performance while other indicators revealed weak or duplicative effects.
For example, joining the new wave of ETF products based on ESG principles, FlexShares recently launched the FlexShares STOXX US ESG Impact Index Fund (NasdaqGM: ESG) and FlexShares STOXX Global ESG Impact Index Fund (NasdaqGM: ESGG).
The funds are based on the STOXX global ESG Impact Index, which screens companies scoring better with respect to a select set of ESG key performance indicators (KPIs), with the bottom 50% of such companies based on their ESG KPI scores are excluded from the Index, as are companies that do not adhere to the UN Global compact principles, are involved in controversial weapons or are coal miners.
“KPI integration improves bottoms-up security selection while removing data-provider bias,” FlexShares added. “The methodology builds an ESG index by essentially coding at the ‘root’ level versus applying an overlay or top-down ESG strategy; it parallels the best behaviors of portfolio managers when it comes to evaluating, sorting and selecting companies for investment.”
For more information on ESG investment strategies, visit our socially responsible ETFs category.