As environmental, social, and governance investing continues gaining momentum, more asset allocators are demanding clarity.
Additionally, more companies are prioritizing ESG reporting and simplifying internal processes in that regard. Both trends could be long-term positives for exchange traded funds such as the American Century Sustainable Equity ETF (ESGA).
“Businesses are not slowing their environmental, social and governance investments and feel that there should be formal reporting processes — and almost all of them believe their brand is impacted by ESG issues, according to a study from NAVEX,” reports David Wofford for Environmental Leader.
ESGA is a meaningful consideration at a time when money managers are evaluating a plethora of ESG products, many of which aren’t as ESG-friendly as purported to be. On that note, ESGA is actively managed, which could benefit investors looking for ESG clarity and purity.
The American Century fund employs a multi-factor approach — growth, momentum, and value — to construct a basket of stocks with robust competitive advantages, favorable risk/reward profiles, and impressive ESG credentials. It can be argued that some ESGA components are already proving adept at ESG reporting.
“With ESG tracking and reporting becoming increasingly a priority, tools to help in those areas have also evolved, such as recent offerings that track supply chain ESG risks from Avetta or an IsoMetrix system that tracks ESG data to efficiently report data,” according to Environmental Leader.
The NAVEX survey also indicates that executives at many companies — both in the U.S. and abroad — who don’t have ESG reporting procedures in place should move to implement those standards. That can be seen as confirmation of what many advisors already know: Some companies are simply prioritizing ESG more than others, but more are likely to join the fray over time.
Indeed, some industries and sectors are, at least for the time being, more known for ESG than others. To that end, ESGA allocates a combined 54% of its weight to technology, consumer discretionary, and healthcare stocks, according to issuer data. That could be an enticing mix to compel investors to consider ESGA amid rapid growth for ESG funds.
“Reuters reported at the end of 2021 that ESG investing had increased to $649 billion worldwide, up from $542 billion in 2020 and $285 billion in 2019. ESG funds account for 10% of the worldwide fund assets, according to the report,” notes Environmental Leader.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.