Over in Europe, where regulations and standards are more stringent, banks are beginning to drop clients if they have potential ESG risks so as to avoid paying more money, reports Bloomberg.
European regulators and investors are putting pressure on the financial industry to invest more heavily in low-carbon footprint sectors and move away from the heavier-emitting sectors. Banks are beginning to evaluate for other factors too, aside from just coal exclusions, and are denying loan requests and raising prices on some clients and industries.
“Climate risk is likely to have a major influence on banks’ loan quality, and depending on how climate change unfolds, and on the policy response to it, the losses that ensue could be substantial,” Moody’s Investors Service said.
The European Central Bank has recently said that banks have been too slow in addressing risks, but the European Banking Authority has recognized that there is a core change that is happening within the banking industry to address ESG issues.
Banks are “making more clear distinctions across the auto loan book, they are making more clear distinctions in the leasing books, they are making more clear distinctions in mortgages,” said Jacob Gyntelberg, director of economic and risk analysis department at the European Banking Authority, in an interview. “They are looking at sectoral differentiation when it comes to pricing, and they are even saying no.”
The U.S. still lacks any standardized system for ESG measuring and reporting, although the SEC is looking into reporting for companies and accountability. Europe’s experiences could very much be the writing on the wall moving forward for the U.S. as investors continue to put pressure on ESG investing and make the climate crisis a priority.
Capture Mid-Cap Growth With an ESG Focus
The American Century Mid Cap Growth Impact ETF (MID) invests in companies that are actively working across a broad spectrum of ESG principles, including clean energy and solar. MID is an actively managed fund that seeks to invest in mid-cap companies that exhibit growth and ESG principles.
Using the United Nations Sustainable Developmental Goals (SDG), which include issues such as affordable and clean energy, decent work and economic growth, industry, innovation, infrastructure, and responsible consumption and production, the portfolio managers assign each security an impact thesis based on its fundamental growth profile and current or projected SDG alignment.
By utilizing third-party mapping tools, frameworks that are provided by sustainable investing platforms, or internal research, the impact thesis is created. In order to avoid impact washing (when companies aren’t actually following SDG but give the impression they are), the highest emphasis is placed on the impact created by the product or service the company produces. Companies can align on more than one SDG, and the fund doesn’t prioritize one SDG over another.
MID uses the market caps from the Russell Mid-Cap Growth Index, which are companies between $677 million to $46 billion, and is a non-diversified fund.
As an actively managed fund, MID is semi-transparent and publishes a proxy portfolio daily. The ETF carries an expense ratio of 0.45%.
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