As the investment community grows and matures, more investors are beginning to branch out from traditional strategies and look into alternative options like exchange traded funds that track environmental, social and governance principles.
For instance, OppenheimerFunds offers some ESG-related ETF strategies, including the Oppenheimer ESG Revenue ETF (NYSEArca: ESGL) and Oppenheimer Global ESG Revenue ETF (NYSEArca: ESGF).
“We have a tremendous passion and conviction around the space,” Sharon French, Head of Beta Solutions at OppenheimerFunds, said at the Inside ETFs 2018 conference. “Environmental and social investing is not new – it’s about 200 years old. The education and the sort of mainstreaming of the this concept is pretty new.”
ESGL targets broad U.S. large-caps through the S&P 500 but screens through Sustainalyics’ proprietary scoring system that focuses on those with positive ESG attributes and employs a revenue-weighted methodology.
ESGF, on the other hand, takes a global approach. The ETF tries to outperform the MSCI All Country World Index with strong ESG practices and re-weights companies based on revenue earned. MSCI ESG Research utilizes a proprietary ESG scoring system and screens companies based on Sharpe Ratio, a measure of risk-adjusted performance.
ESG investments try to deliver returns while monitoring the long-term impact of a company’s business practices on society, the environment and performance of the business.
Incorporation of non-financial data over ESG practices can provide deeper insight into company performance, compared to traditional fundamental analysis. A number of third-party firms are now providing ESG metrics from companies and comprehensive ESG scoring on a number of firms.
“In the past, there’s been sort of negative screening, which people felt like and then some of the data supported. It took you out of main parts of the market that would potentially drive return. So it’s evolved,” French said.
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