Socially Responsible Investments Shift from Niche to Core ETF Strategy

The sustainable investments are not just a gimmick. A 2015 report by Morgan Stanley found that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.”

The outperformance is attributed to better governance practices, along with diminished profit-eroding conflicts with workers, regulators and consumers. Additionally, some popular screens include the exclusion of poison-pill anti-takeover provisions, transparency about executive pay and policies that favor shareholder rights.

“SRI/ESG funds do well for the same reasons other investment strategies do well: good diversification, good asset selection, and good risk management,” Kurtz added.

Investors interested in incorporating sustainable investment ideas into a core strategic position have a number of options available. For instance, 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, were some of the earliest options to hit the market.

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.

The 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, revolve around Economic, Social and Governance principles.

The SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) and the iShares MSCI ACWI Low Carbon Target ETF (NYSEArca: CRBN) 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.

More fund sponsors are jumping on the sustainable or ESG investment theme. Recent launches include the Columbia Sustainable U.S. Equity Income ETF (NYSEArca: ESGS), Columbia Sustainable International Equity Income ETF (NYSEArca: ESGN), Columbia Sustainable Global Equity Income ETF (NYSEArca: ESGW), FlexShares STOXX US ESG Impact Index Fund (NasdaqGM: ESG), FlexShares STOXX Global ESG Impact Index Fund (NasdaqGM: ESGG), Oppenheimer ESG Revenue ETF (NYSEArca: ESGL) and Oppenheimer Global ESG Revenue ETF (NYSEArca: ESGF).

For more information on socially responsible investment strategies, visit our socially responsible ETFs category.