Another Reason Active, ESG Combination Matters | ETF Trends

An increasingly complex regulatory environment could highlight the benefits of active management in the ESG space.

Count the Calvert US Select Equity ETF (CVSE) is among the exchange traded funds ready to answer the call. The ETF, which debuted in January, employs active management to identify domestic large-cap companies that have established track records of ESG commitments or those making noteworthy progress.

CVSE’s methodology and use of active management could be attractive to investors at a time when regulators and institutional investors are applying more scrutiny to companies boasting ESG credentials which in reality may be lacking.

Another possible benefit associated with CVSE is that more companies are looking to meet data assurance goals. But many believe they’re lagging behind in that department, according to a recent KPMG survey.

Active, ESG Combo Could Prove Important

This combination could be prove important ahead of the 2024 assurance reporting cycle, which will require many global companies to illuminate stakeholders to internal ESG data and reporting efforts, among other factors.

“KPMG’s recent report, Road to Readiness: KPMG ESG Assurance Maturity Index 2023 reveals that as many as 75% of companies globally feel they have a long way to go to be ready to have their ESG data assured and meet new regulatory requirements. In a matter of months, the first tranche of mandatory regional and international sustainability reporting standards will come into force,” according to the firm.

CVSE’s emphasis on domestic large-cap companies is pertinent because, as noted by KPMG, only French and Japanese firms score better than U.S. corporations regarding ESG assurance. Across all geographies, corporations with market values in excess of $10 billion tend to outscore smaller competitors in the assurance department.

“Leaders ranked more than three times higher than other respondents (50% to 14%) for having processes and controls documented, in place and tested for environmental data, with similar leadership for governance data (52% to 19%) and social data (45% to 16%),” added KPMG. “87% of Leaders are integrating their ESG data systems with financial reporting systems to gain the benefit of consistent financial controls over non-financial data, compared with only 35% of others.”

Given the recent emphasis on assurance, it’s a concept many ESG indexes may not be able to meet. That further highlights the benefits of active management available with CVSE.

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