Environmental, social and governance or ESG-related exchange traded funds will capitalize on the challenges of a shifting global environment.
“We believe climate change is one of the biggest risks in investment portfolios today. These risks impact almost all segments and industries – not just the obvious polluters. However, with climate risk comes tremendous investment opportunity as the economy reworks against the impact of climate change,” according to a recent State Street Global Advisor note.
State Street Global Advisors is also putting its money where its mouth is. The number of climate-related proposals on company ballots has been steadily increasing over the past few years.
“We review and vote every climate-related proposal in our portfolio. We also endeavor to engage with the proponents of shareholder proposals to gain additional perspective on the issue, as well as with companies to better understand how boards are managing relevant risks,” according to State Street.
As a way to help investors also tap into these opportunities, State Street Global Advisors offers a suite of socially responsible and ESG-related ETFs. For example, more recently launched SPDR S&P 500 ESG ETF (EFIV) enhances both SPDR’s ESG and S&P 500 ETF offerings, helping investors incorporate ESG while achieving a risk and return profile comparable to the S&P 500. The ETF tracks the S&P 500 ESG Index, which is designed to measure the performance of securities meeting certain sustainability criteria (i.e., criteria related to environmental, social, and governance factors) while maintaining a similar overall industry group weight as the S&P 500 Index.
State Street Global Advisors’ SPDR S&P 500 Fossil Fuel Free ETF (SPYX) tries to allow climate change-conscious investors to align the core of their investment strategy with their values by eliminating companies that own fossil fuel reserves from the S&P 500.
Additionally, the SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) targets the MSCI ACWI Low Carbon Target Index, which tries to address carbon exposure by overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, compared to the broader market. LOWC was created for the U.N. Joint Staff Pension Fund.
“We engage with companies to understand their approaches to mitigating and managing the physical and transitional impacts of climate change. Since 2014, we have engaged with more than 600 companies across multiple industries on climate-related issues. Our engagement approach leverages the four dimensions of the Task Force on Climate-related Financial Disclosures (TCFD) framework: Governance, Strategy, Risk Management, and Metrics. We expect companies to disclose their approach to identifying climate-related risks and the management policies and practices in place to address such issues,” State Street Global Advisors added.