Both ESG-related ETFs will also be re-weighted based on revenue. Specifically, the rules-based indexing methodology tries to improve their performance return through weighting each security in the index by top line revenue. Components are then rebalanced every quarter to keep the Revenue Weighted Indices in line with the companies’ most recently reported revenue levels.[related_stories]
Academic research has revealed that strong governance mechanisms have helped diminish default risk and lower bond yields. The ESG principle are more of a way of living or conducting business that correspond with a firm’s core values. Many companies have defined their corporate social responsibility to account for their impact on the environment and social welfare even if there is no legal requirement.
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 new fund products, visit our new ETFs category.