Assessing ESG Value Add Attributes | ETF Trends

Environmental, social, and governance (ESG) investing often is, on a superficial level, tied to growth, but it’s also ripe with value attributes. That pertains to value in both the traditional sense — discounted stocks — and the perspective of value propositions.

The value add attributes of ESG are often overlooked by novice investors, but some exchange traded funds, including the IQ Candriam ESG US Equity ETF (IQSU), make it easy to access those important traits.

“The overwhelming weight of accumulated research finds that companies that pay attention to environmental, social, and governance concerns do not experience a drag on value creation—in fact, quite the opposite,” according to McKinsey. “A strong ESG proposition correlates with higher equity returns, from both a tilt and momentum perspective.3 Better performance in ESG also corresponds with a reduction in downside risk, as evidenced, among other ways, by lower loan and credit default swap spreads and higher credit ratings.”

For investors, knowing that ESG offers value add qualities is important. So is understanding why this is the case. Of course, how to capitalize on those positive attributes in real time is vital in its own right. To that point, IQSU is an efficient avenue for advisors and investors seeking the benefits of ESG’s value add proposition in a low-cost ETF wrapper.

“A strong ESG proposition helps companies tap new markets and expand into existing ones. When governing authorities trust corporate actors, they are more likely to award them the access, approvals, and licenses that afford fresh opportunities for growth,” added McKinsey.

Another point to consider is that the historical evolution of ESG usually emphasized the “E” while leaving something to be desired on the social and governance fronts. However, more publicly traded companies are awakening to the importance of being good social stewards and driving change on that front. Over the long haul, that could have compelling implications for assets such as IQSU.

“Yet one major study found that companies with social-engagement activities that were perceived to be beneficial by public and social stakeholders had an easier go at extracting those resources, without extensive planning or operational delays. These companies achieved demonstrably higher valuations than competitors with lower social capita,” concluded McKinsey.

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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.