A recent writeup in Forbes discussed establishing an environmental, social, and governance (ESG) framework for companies and feasible, sustainable ways to approach ESG integration. Having a viable, long-term strategy that produces results and that investors are going to be interested in isn’t just about an overlay approach.

One of the most important steps a company needs to take is to set ESG goals that the framework can be built toward. By identifying individual drivers, such as financial criteria, a company can funnel growth into the appropriate places.

For investors, particularly in a market where there are no standardized ESG measurements, having a direct and transparent way to convey progress and practices from a company perspective is important. It promotes confidence in the company as an investment and provides security in knowing exactly how a business operates.

For a company this means establishing how to go about measuring progress in a consistent manner, what will be measured, and being able to speak to those measurements and results.

While some companies use internal benchmarks for their ESG standards, some use standardized ones such as the UN Sustainable Development Goals, the Global Reporting Institute, the Impact Investing Institute, and others. Using a widely recognized standards mean that advisors and investors usually come to the table already understanding goals and measurement standards.

Putnam Knows Company Practices

Putnam believes in sustainability and holds ESG practices as a core aspect of its investment approach. Its ESG-focused active sustainability managers are a fundamental part of the business and work to align shareholder ESG values with investment practices by engaging directly with the companies invested in as to their ESG fundamentals and practices.

The Putnam Sustainable Leaders ETF (PLDR) invests in companies whose focus on ESG issues goes well beyond just basic compliance, but for whom ESG is an integral part of their long-term success. These companies have transparent goals and provide consistent, measurable progress updates.

As a semi-transparent fund using the Fidelity model, PLDR does not disclose its current holdings on a daily basis. Instead, it publishes a tracking basket of previously disclosed holdings, liquid ETFs that mirror the portfolio’s investment strategy, and cash and cash equivalents. The tracking portfolio is designed to closely track the actual fund portfolio’s overall performance, and actual portfolio reports are released monthly.

Holdings as of the end of July included Microsoft Corp. at 8.61%, Apple at 7.31%, and Amazon.com at 4.95%. The fund was heavily allocated to information technology stocks (32.67%), followed by healthcare at 15.92% and consumer discretionary at 14.90%. PLDR has an expense ratio of 0.59%.

Meanwhile, the Putnam Sustainable Future ETF (PFUT) invests in companies seeking to provide solutions to future sustainability challenges. It is a forward looking approach as these companies are helping to develop ESG and solve problems related to sustainability.

PFUT focuses on impact companies as identified in its sustainability rating system, investing in companies driving economic development, as Putnam believes that strong sustainability practices equate to strong financial growth.

Like PLDR, PFUT is a semi-transparent active ETF. Holdings are disclosed monthly, but as of the end of July, they included Danaher Corp (which designs and manufactures products for professional, medical, industrial, and commercial industries) at 3.82%; Adobe at 3.43%; and Chipotle Mexican Grill at 2.71%.

PFUT’s top sector allocations as of the same time period were 32.43% in healthcare stocks, 29.983% in information technology, and 9.71% in consumer discretionary. PFUT has an expense ratio of 0.64%.

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