As the market enters bear country, many sustainable fund investors are bearing the brunt of this downturn. But at Morningstar, Jon Hale, director of sustainability research for the Americas at Sustainalytics, notes that investors should stay the course with sustainable investing. In fact, Hale argues that investors’ “long-term commitment to sustainability can help investors weather short-term market turmoil.”
Sustainable investors should remember why they’re sustainable investors. After all, sustainable investments indicate a commitment to seeking both competitive long-term returns and positive environmental, social, and corporate governance outcomes over the long haul.
“Assuming you have a diversified portfolio designed to meet your long-term financial needs, you should remain invested for that reason alone,” writes Hale. “Trying to time the market is a crapshoot.”
Sustainable investors are engaging with companies on improving their sustainability performance and supporting ESG-related shareholder questions at company meetings. In this year’s proxy season, shareholders have been able to press public companies into improving their ESG performances — and they’re seeing results. Despite the current market conditions, Morningstar asserts that this trend will keep up.
No ESG fund — or any fund, for that matter — is always going to outperform. But Morningstar believes that, on balance, companies that embed sustainability into their operations, human capital, and governance will likely prosper more than those that don’t.
“In the end, if you have a well-diversified portfolio, sustainable or not, and stay the course in difficult markets, it’s likely to generate competitive long-term returns for you,” Hale writes. “But having that additional sustainability connection with your portfolio should give you even more confidence to stay the course.”
State Street Global Advisors offers a suite of ESG-themed ETFs, including the SPDR MSCI ACWI Climate Paris Aligned ETF (NZAC) (formerly known as the SPDR MSCI ACWI Low Carbon Target ETF (LOWC)), the SPDR S&P ESG ETF (EFIV), the SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX), and the SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX).
NZAC, which tracks the MSCI ACWI Climate Paris Aligned Index, is designed to support investors who seek to reduce their exposure to transition and physical climate-related risks and who wish to pursue opportunities arising from the transition to a lower-carbon economy in alignment with the Paris Agreement requirements.
EFIV follows the S&P 500 ESG Index, which is the ESG offshoot of the S&P 500. The fund is designed to deliver comparable industry exposures to the S&P 500, though the ESG fund holds 308 stocks and the parent index holds over 500.
SPYX tracks the S&P 500 Fossil Fuel Free Index, a benchmark of companies within the S&P 500 that are “fossil fuel-free,” defined as companies that don’t own fossil fuel reserves (thermal coal reserves, coal reserve byproducts, or oil or gas reserves).
EEMX, which tracks the MSCI Emerging Markets ex Fossil Fuels Index, credibly excludes fossil fuel stocks, as the energy sector represents only 0.41% of the ETF’s portfolio.
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