Environmental, social, and governance (ESG) practices aren’t just a hot button topic amongst regulators and corporations; investors are becoming more educated about this particular field of investing and are requesting investment into ESG more often. Advisors continue to play an integral role in helping guide ESG investing into the right avenues based on individual clients’ priorities.
Recent research from Aegon, a global asset manager, revealed that 41% of advisors are being asked more often by clients about ESG investing, reported Financial Times. Guy Rainbird, public affairs director at the Association of Investment Companies, believes that climate change issues as well as ESG in general are “featuring strongly” as important topics for investors.
“We’re aware that many advisers are proactively raising the issue of ESG or ethical preferences with clients,” said Rainbird.
This is a trend that’s playing out globally. Invesco advisors in January performed a survey regarding ESG investment and found that 51% ask investors if they would “prefer to invest sustainably or not.” However, it’s important to go just beyond that initial interest and actually dig into clients’ motives behind investing in ESG, as well as what areas are important to them.
“Each client will have their own personal view on ESG and therefore advisers need to ask follow up questions,” said Paul Chilver, an associate and financial planning manager at Birkett Long IFA. “For example, I have clients who have an interest in funds that aim to fund solutions to the climate crisis, while other clients are wanting to invest in funds that screen out certain areas, for example tobacco.”
SPDR Offers Investing That Screens Out Fossil Fuels
Investors looking to reduce exposure to fossil fuels in their investments need only turn to the SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX). The investment is a core allocation to the large-cap equities of the S&P 500, except with much-reduced carbon footprints.
The fund tracks the S&P 500 Fossil Fuel Free Index, a benchmark of companies within the S&P 500 that are “fossil fuel free,” defined as companies that don’t own fossil fuel reserves (thermal coal reserves and coal reserve biproducts, as well as oil or gas reserves).
That’s not the same as being devoid of all oil stocks. The fund still has minor allocations to traditional energy companies, such as Valero (VLO) and Halliburton (HAL). But without exposure to companies actually holding the physical oil, coal, or gas reserves, the fund’s energy allocation is much reduced. Energy comprises just 0.72% of the ETF’s sector make-up, as compared to 2.60% of the SPDR S&P 500 ETF Trust (SPY).
Top sector allocations of SPYX include information technology at 28.04%, healthcare at 13.29%, and consumer discretionary at 12.31%.
SPYX has an expense ratio of 0.20%.
For more news, information, and strategy, visit the ESG Channel.