Environmental, social, and governance (ESG) investing is under increasing scrutiny this year as regulators clamp down on greenwashing and as some politicians target the investing style, asserting that the asset managers behind it are politically motivated.
Even with those controversies, a majority of financial professionals back this methodology and see long-term relevance. That could be good news for the related exchange traded funds, including the SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX), the SPDR S&P SmallCap 600 ESG ETF (ESIX), and the SPDR S&P 500 ESG ETF (EFIV), among others.
“A survey of 550 Bloomberg Terminal users found that more than 60% expect ESG to be a standard part of, or increasingly critical to, running a business. By comparison, roughly a third of the respondents think the strategy that takes into account environmental, social and governance issues — and impacts roughly $40 trillion of assets — is just a ‘fad,’” according to the news agency.
Of those surveyed, 41% believe ESG will eventually become a standard business practice, while another 20% said that related issues will be more critical in the years ahead.
Whether or not those trends facilitate increased adoption of ESG ETFs remains to be seen, but there’s ongoing momentum on that front. Despite this year’s erosion in growth stocks — an asset class that permeates equity-based ESG ETFs — advisors and investors continue allocating capital to these funds.
The survey of Bloomberg Terminal subscribers also indicated that there are notable regional differences in how the investing style is perceived, indicating there’s still room for growth for related ETFs in many of the world’s largest ETF markets.
“European respondents were most optimistic about ESG’s importance, followed by those surveyed in Asia, with the Americas trailing at roughly 50%,” according to Bloomberg.
Motivations for embracing the investing style vary but are credible. Those include the theory that companies that score well in these terms are more profitable and money managers embrace the style at the behest of values-driven clients.
“More than half of respondents to the survey of Bloomberg Terminal readers said they were taking action on ESG because it’s crucial to boosting corporate profits as opposed to having a positive impact on society and reducing carbon emissions. Some 62% of respondents said they were acting on ESG at the behest of their clients, while about three-fifths said they were doing so primarily to protect their companies’ reputations,” noted the survey.
Other SPDR ETFs include the SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG), the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND), the SPDR MSCI USA Gender Diversity ETF (SHE), and the SPDR MSCI USA Climate Paris Aligned ETF (NZUS).
For more news, information, and analysis, visit the ESG Channel.
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.