Vitriol Not Stopping Asset Management ESG Embrace

There’s no shortage of criticism aimed at ESG standards and the funds that those guidelines serve as backstops. But that’s not preventing the asset management industry from embracing it.

That momentum could be beneficial to issuers of ESG exchange traded funds, including the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (NYSE Arca: CDEI), Calvert US Large-Cap Core Responsible Index ETF (CVLC), and the Calvert US Select Equity ETF (NYSE Arca: CVSE) – each of which debuted in January.

The asset management industry’s ongoing prioritization of ESG could be a long-term positive for investors. This is because it broadens ETF choice. Which potentially leads to lower fees and more nuanced strategies that appeal to broader swaths of values-based investors.

Details On Asset Managers Prioritizing ESG

A recent survey by Vidrio Financial provides insight regarding the extent to which asset managers are focusing on ESG. The poll indicates 64% of those pros are emphasizing risk/reward profiles. This is a marked increase from just 38% in the 2021 iteration of the poll.

In what could be good news for upstart ESG ETF issuers such as Calvert, 54% of respondents told Vidrio ESG is a key consideration for clients. Markedly, that’s double the amount that said the same two years prior. That could be a sign that the anti-ESG rhetoric just chatter and that money managers view it as such.

Of the Calvert ETFs mentioned above, CVSE could be highly relevant going forward because it’s an actively managed offering. By not being constrained by an index, the fund’s managers may have latitude to place more emphasis on social and governance issues over time.

Interestingly, the asset management industry is literally putting its money where its proverbial mouth is as it’s using ESG frameworks in elements of employee compensation.

“Some asset managers also seem to have started using ESG performance metrics to determine how they pay employees,” reported Michael Thrasher for Institutional Investor. “In 2023, 37% of Vidrio’s survey participants said their company considered ESG performance metrics as part of compensation plans. And 15% said they plan to consider them in the future. In 2021, no respondents considered it.”

That could be a sign that professional money managers are aware that greenwashing allegations are among the primary sources of criticism and a potential deterrent to broader acceptance of this investment style. More industries waking up to that fact could keep critics at bay and increase adoption.

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