For experienced and novice investors, there are myriad complexities associated with environmental, social, and governance (ESG) ratings and scoring.
Resulting confusion speaks to the advantages of exchange traded funds that employ easy-to-understand approaches to ESG, including the Invesco ESG Nasdaq 100 ETF (QQMG) and the Invesco ESG NASDAQ Next Gen 100 ETF (QQJG).
Further ESG demystification can harnessed via generative artificial intelligence (AI) — the form of AI rooted in machine learning that allows human users to interact with a computer program and ask it straightforward questions such as “Is ABC Corp. a good ESG stock?”
Of course, generative AI isn’t a perfect technology. It’s still in its infancy, indicating that advisors and investors shouldn’t rely on it for securities selection. There’s no guarantee that the answers provided will be good ones. That highlights the advantages of ETFs such as QQMG and QQJG.
AI and ESG: More Marriage Than Collision
In terms of applications among investment products, AI and ESG are not competing interests. In fact, the former could potentially facilitate more adoption of the latter.
“The most important step for individual investors right now, is to take advantage of free sources of institutional-grade environmental, social, and governance data, personalize your investing criteria based on your own values and performance requirements, and then follow the data to where values-based investments and extraordinary returns intersect,” reported Deborah Yang for Fast Company.
The Fast Company report also noted that AI may have applications in terms of “untangling” the web of ESG ratings and scoring methodologies which have led to lack of uniformity and confusion among end users. That confusion is one reason why some market participants emphasize simplicity when evaluating ESG ETFs.
“At scale, the impact of investors who are voting with their capital may be the fastest path to progress across all three elements of environmental, social, and governance and one of the surest ways to de-weaponize ESG in a way that delivers economic, environmental, and social returns for all investors,” according to Fast Company.
Regarding the AI/ESG combination as an investable theme, QQMG and QQJG could be two of the standout ETFs. QQMG follows the ESG counterpart to the Nasdaq-100 Index (NDX), meaning its exposure to AI-related stocks is significant. For example, the technology sector accounts for 59.17% of the ETF’s roster. Microsoft (NASDAQ: MSFT) and Nvidia (NASDAQ: NVDA) combine for 20.52% of the ETF’s weight. Those are two of the most well-known mega-cap AI names.
QQJG could prove credible on the AI front as well. The ETF features a 40.52% weight to tech equities. Combine that with its ESG foundation, and QQJG could be an interesting way for investors to access smaller stocks with AI inroads.
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