Shareholders Are Driving ESG Investment Growth | ETF Trends

A survey conducted recently found that, perhaps surprisingly, it wasn’t the potential for returns but instead pressure from boards and stakeholders that was driving environmental, social, and governance (ESG) adoption, reports Institutional Investor.

The survey was conducted by Vidrio Financial, a software firm, along with Close Group Consulting, a boutique advisory firm, and consisted primarily of respondents in North America. Of those that participated, 72.73% reported that demand from shareholders and boards was why ESG was being pursued and integrated into their practices.

One area showing growth was an increase in how many limited partners were either already including ESG considerations in their opportunity and risk assessments (38.46%), or were planning to do so (23.08%).

Asset managers might be for ESG inclusion for investors, but they still are not sold on including it as a consideration in their own compensation plans. It’s a direct reflection on the still-evolving space that currently lacks any standardized metrics and reporting; 41.67% reported that the difficulties around ESG metrics and data are the biggest issues prevent them from investing.

“While this finding was somewhat surprising [given] the large amount of information we hear from both allocators and managers on the importance of ESG,” the survey said, “[it] also identified a divergent set of opinions and approaches that reflect the somewhat complex nature of implementing an ESG strategy generally.”

ESG Investing in the S&P 500

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 31.24% in information technology, 14.74% in consumer discretionary, and 12.25% 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.