Among the words advisors and investors want to hear more when it comes to accurately describing environmental, social, and governance (ESG) exchange traded funds, “transparency” is top of the list.
In investing, transparency always a good thing, but it’s increasingly essential with ESG because this fund category is rapidly evolving and expanding. Additionally, scrutiny on ESG definitions, ratings, and scoring is increasing, meaning that transparency among the relevant ETFs takes on more importance.
On that note, the SPDR S&P ESG ETF (EFIV) is an ETF for ESG-conscious investors to consider today. EFIV follows the S&P 500 ESG Index, which certainly checks to boxes of easy-to-understand and transparency this ETF category.
“The influx of ESG financial products is putting more pressure on companies and portfolio managers to provide investment products that can meet investors’ evolving demands,” reported Andrew Kaminsky for Triple Pundit. “With companies eager to showcase their products or funds as sustainable, there is a massive flock of ESG information being released. That’s great, but there are no reporting standards or industry alignment. It’s difficult to compare investment options without ESG reporting standards.”
The $518.5 million EFIV avoids many of the controversies and issues befalling some ESG strategies because the ESG and sustainability criteria set forth by index provider S&P are relatively straightforward. Said another way, the bulk of EFIV’s components make sense as credible ESG stocks.
When it comes to ETF methodology, simplicity often has its advantages — one of which is that it paves the way for attracting more assets. After all, asset allocators favor easy-to-understand strategies.
“Some surveys suggest 48 percent of investors are interested in sustainable investing. Others suggest that 85 percent are ESG-conscious with their money. What is certain, though, is that such investing is growing. When in doubt, follow the money,” according to Triple Pundit. “Global ESG funds saw a record $649 billion in investments through Nov. 30, 2021. That’s up from $542 billion in 2020 and $285 billion in 2019.”
Further highlighting the allure of EFIV are efforts to bring global uniformity to ESG ratings and scoring. That could be a sign that funds such as EFIV have bright long-term outlooks.
“A statement issued and signed by more than 80 chief financial officers (CFOs) showed support for the initial framework but also encouraged revisions. Much of the feedback focused on ensuring clear definitions and guidelines that are in close alignment with already existing frameworks like the SASB standards,” concluded Triple Pundit.
For more news, information, and strategy, visit the ESG Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.