Multinational audit, consulting, and tax services firm Deloitte recently surveyed a number of financial firms, with respect to current near-term risks. One common theme was risks related to environmental, social, and governance (ESG).
“Risks related to climate change and social issues will intensify the most in the next two years, finance executives predicted in a survey, and firms will have to find ways to cope,” the article said. “Environmental, social and governance issues topped the list of risk managers’ concerns in a Deloitte poll to be released on Monday, followed by cybersecurity and credit matters. More than half of the 57 firms surveyed were banks while the rest were in insurers, asset managers and other financial-services providers.”
When it comes to ESG risks, it might seem difficult to fathom that climate change and social issues might not have a direct impact on financial firms. However, it’s not the firms themselves that are at risk. It’s their clients.
“For financial firms, it’s harder to adapt to changes in the ESG environment because it’s not only about their own carbon footprint or other impact, they also have to look at their clients’ footprint, social impact,” said J.H. Caldwell, head of the financial services risk advisory group at Deloitte.
With ESG coming to the forefront in pandemic-ridden 2020, it only makes sense to see what opportunities exist in the ETF space. One of those funds focuses on the S&P 500’s best and brightest in ESG: the SPDR S&P 500 ESG ETF (EFIV).
Big 3 in Tech Are Dominating ESG
The fund seeks to provide investment results that correspond generally to the total return performance of an index that provides exposure to securities that meet certain sustainability criteria (criteria related to ESG factors) while maintaining similar overall industry group weights as the S&P 500 Index. Big tech dominates the fund’s top three holdings at over 20% of assets in names like Apple, Microsoft, and Amazon. All three companies recently reported stellar earnings.
In seeking to track the performance of the S&P 500 ESG Index, the fund employs a sampling strategy, which means that it is not required to purchase all of the securities represented in the index. Overall, EFIV gives investors:
- Investment results that, before fees and expenses, correspond generally to the S&P 500 ESG Index.
- Exposure to an index that is designed to select S&P 500 firms meeting certain sustainability criteria (related to environmental, social, and governance factors) while maintaining similar overall industry group weights as the S&P 500 Index.
- Potential ESG core exposure, based on its focus on sustainability criteria and comprehensive market coverage of the flagship core S&P 500 Index.
- A Low expense ratio of 0.10%, 27 basis points below the category average.
For more news and information, visit the ESG Channel.