The pandemic couldn’t stop the popularity of environmental, social, and governance (ESG) investing. In fact, it only catapulted ESG into the spotlight, but did the news cycle also have a hand in that?
For now, ESG ETFs don’t care how the capital is coming in–just keep bringing the inflows.
“Over $19 billion has flowed into ESG ETFs this year, bringing the total to over $40 billion,” said Luke Oliver, Head of Index Investing for the Americas at DWS Group during en episode of “ETF Edge.” “Just to put that in some context, there was less than $8 billion in inflow last year and prior to that the flows were very scant.”
“There’s a capitalist endeavor behind E, S, and G because they give you companies that are better-prepared” for the future, Oliver added. “What we want to offer people is the ability to get exposure to a benchmark like the S&P 500, but to do it aligned with their values, and in line with those values, there’s potential for outperformance.”
With the 24/7 news cycle on constant rotation, certain aspects of ESG are able to permeate investors’ minds.
“You can’t put on the TV without seeing environmental issues, wildfires. We’re seeing social issues across this country and in others. And we’ve also had recently some big headlines around firms that have run into trouble with corruption or fraud,” he said. “These are the topics that people are seeing … and with the growth of ESG, they are now able to express those when investing in the market.”
ESG ETF Exposure
As opposed to picking individual companies with ESG initiatives, investors who want ESG exposure can do so via an ETF wrapper like the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.
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