While the idea of socially responsible investing (SRI) is taking flight, many advisers and investors are still pondering the ability of these strategies to deliver comparable or better returns relative to traditional equity benchmarks. Still, more companies are noting the importance of ESG themes.
With ESG and sustainable ETFs seen as a primary avenue for engaging millennial investors, more issuers are rolling SRI funds.
Popular BlackRock ESG ETFs include the iShares MSCI KLD 400 Social ETF (NYSEArca: DSI) and the iShares MSCI USA ESG Select ETF (NYSEARCA: SUSA). Other well-known funds in this category include the Oppenheimer ESG Revenue ETF (NYSEArca: ESGL) and Oppenheimer Global ESG Revenue ETF (NYSEArca: ESGF).
Sustainable investing can be defined “as combining traditional investing with sustainability-related insights in an effort to reduce risk and enhance long-term returns,” said BlackRock in a recent note. “Assets in dedicated sustainable investing strategies around the world have grown at a rapid clip in recent years. We are seeing a surge in clients’ interest in incorporating sustainability-related insights into their investments.”
According to a recent survey, Sustainable Signals: Growth and Opportunity in Asset Management, from the Morgan Stanley Institute for Sustainable Investing and Bloomberg, a majority of U.S. asset managers are now practicing sustainable investing and view it as a strategic business imperative. Specifically, 75% of respondents revealed that their firms have adopted sustainable investing, compared to 65% in 201
Accelerating Demand
Investors’ demand for ESG and sustainable investing strategies is expected to grow in significant fashion in the years ahead.
“This demand looks poised to accelerate amid societal and demographic changes and greater investment conviction,” said BlackRock. “There’s growing awareness among investors that certain factors—often characterized as environmental, social and governance, or ESG—can be tied to a company’s long-term growth potential. Also contributing to this backdrop: Increased regulation and government focus; for instance, as the impact of climate change becomes more noticeable.”
A key point in driving more interest in sustainable investing strategies is the ability of the related products to deliver similar or superior returns to funds that are not ESG or SRI focused.
“We find ESG has much in common with existing quality metrics such as strong balance sheets, suggesting ESG-friendly portfolios could be more resilient in downturns. These resilience properties deserve attention as market uncertainty increases. In other words: We have arrived at a ‘why not’ moment in sustainable investing,” according to BlackRock.
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