The environmental, social, and governance (ESG) investing arena is coming into view more and more under the Securities and Exchange Commission’s (SEC’s) microscope. As ESG evolves, investors can ride the ebb and flow of the evolving sector using active management.
It’s not just the industry evolving, but also investors’ needs.
“The ESG space is continually evolving, and this is not the first time S&P DJI has changed index requirements in order to meet client demands,” an Institutional Investor article duly noted. “Most recently, additional thermal coal exclusions were introduced in 2020. The responsiveness of S&P DJI to adapt to the latest industry trends ensures their indices reflect the growing needs of ESG investors.”
It’s not just social needs that investors are looking for. Obviously, making money is an important factor when making an investment — in certain cases, the need for gains outstrips the ESG focus itself, causing a duality of social responsibility and creating a profitable portfolio.
In either case, there’s no denying the exponential growth ESG has seen thus far.
“Bloomberg Intelligence reported in January that global ESG assets may surpass $41 trillion this year and reach $50 trillion by 2025,” Institutional Investor added. “Most of this growth has been in the United States, which has seen 40% growth in assets in the past two years. This growth in ESG is bolstered by the fact that the S&P 500 ESG Index has outperformed the S&P 500 in recent months, illustrating the importance of these indices in meeting investor needs.”
An Active Option in ESG
As mentioned, an active management strategy offers investors dynamic exposure to the markets. While ESG has been exploding in popularity, it’s still a relatively nascent industry.
As such, active management can change with the times via exchange traded funds (ETFs) that employ the strategy. One such fund is the American Century Sustainable Equity ETF (ESGA).
ESGA seeks to provide a total return that exceeds the benchmark over a market cycle by using a core U.S. equity strategy that integrates ESG factors into the investment process. The fund applies an actively managed investment strategy to:
- Rank stocks based on fundamental measures of a stock’s value and growth potential as well as ESG metrics.
- Conduct fundamental analysis to measure value, growth, and price momentum with an overlay of ESG considerations.
- Construct a portfolio that has sustainable competitive advantages, provides better return with minimal risk, and maintains a strong ESG profile.
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