Few, if any, investment strategies have drawn as much criticism as environmental, social and governance investing has. But what doesn’t damage ESG as an investment style could serve to make it stronger.
In other words, much of the sharp criticism aimed at ESG investments, including exchange traded funds, over the past several years could serve the objective of improving the strategy. Should that happen, more advisors and investors could gravitate to ETFs such as the Calvert US Large-Cap Core Responsible Index ETF (CVLC) and the Calvert US Select Equity ETF (NYSE Arca: CVSE).
CVLC and CVSE both turn a year old next month. Owing to astute indexing methodology in the case of CVLC and helped by active management in the case of CVSE, the two ETFs have largely avoided the worst lambasting and political controversy. Still, the duo could benefit from more clarity and longer-ranging improvements.
Future Bright for ESG ETFs CVLC, CVSE
While ESG investing has taken its lumps in political circles and in the court of public opinion, it’s impossible to ignore the long-term growth projections for this investing style – estimates that could benefits products such as CVLC and CVSE. For example, PwC forecasts that assets under management for ESG investing products could reach $34 trillion over the next couple of years.
Getting to that stratosphere and beyond boils down to a few factors, including more clarity on ratings and regulations.
“Holding them back was a lack of universal reporting standards and challenges in obtaining meaningful data. Many investors believed that even if ESG wasn’t driving business decisions then, it would be,” reported Eric Uhlfelder for Institutional Investor.
Advisors and even retail investors have also grown increasingly demanding about what they perceive to be ESG purity – a bell CVSE can answer because it’s actively managed. Said differently, there are some companies that don’t appear to be contenders finding their way into ESG benchmarks and funds, stoking doubt around ESG definitions.
“There are also clear ranking problems. We’ve seen oil companies and cigarette makers outrank electric-car manufacturers. And plant-based meat operations have received below-average ESG ratings even though factory farming is a key source of global greenhouse gases,” according to Institutional Investor.
As the publication notes, it takes time for new systems to evolve and ESG is experiencing evolution. That process could ultimately be beneficial to ETFs and drive more investors to funds such as CVLC and CVSE.
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