Global investing into ESG and sustainability funds is currently at a historic $8 trillion but could reach upwards of $30 trillion by 2030, reports Barron’s.
A new report from Broadridge Financial Solutions showcases the strong growth this year, with ESG funds gaining $577 billion in inflows globally between January and September; for comparison, the total for all of last year was $355 billion. The report also estimates that ESG investing could quadruple by the end of the decade.
In the U.S., a lack of regulations means that ESG investing hasn’t coalesced as much as it has in Europe, with more hesitancy still by investors and issuers to commit to a space that isn’t well-regulated. It leaves a lot of legroom for growth, however, as climate change investing comes more into focus with government commitments to net-zero emissions by 2050 having ramped up.
The inclusion of ESG funds in retirement plans, which could see finalization by mid-2022, would also present growth opportunities and open up a whole new avenue for ESG investing: as of 2019, only 3% of all 401(k) plans had some type of ESG option within them, making up just 0.1% of all plan assets.
ESG Investing in the S&P 500 With SPDR
The SPDR S&P 500 ESG ETF (EFIV) takes a holistic approach to ESG investing by not only focusing on the environmental aspect of ESG, but on sustainability across the social and governance practices of the companies it invests in as well.
The fund tracks the S&P 500 ESG Index, which selects from top companies that meet ESG criteria within the S&P 500, while also adhering to the sector weights of the S&P 500 Index.
EFIV utilizes SPDJI ESG scores to rank companies based on their sustainability. This score is derived from analyzing a thousand data points covering a variety of topics collected from companies and then asking roughly 120 questions, according to the S&P Global website.
EFIV excludes companies involved in tobacco and controversial weapons, those that generate power from coal or derive 5% or more of their revenues from thermal coal extraction, and companies that score low on the United Nations Global Compact standards.
The ETF’s top three sector allocations include 32.15% in information technology, 14.99% in consumer discretionary, and 12.16% in healthcare, as well as several other smaller allocations.
EFIV has an expense ratio of 0.10%, making it one of the cheapest ESG ETFs on the market.
For more news, information, and strategy, visit the ESG Channel.