As an investing style, environmental, social, and governance (ESG) has been on the receiving end of much criticism over the past couple of years, stoking outflows from many of the related exchange traded funds last year.
Politically charged controversies and allegations of greenwashing are among the reasons why some market participants, including wealth managers, are now applying skepticism when it comes to ESG. However, the long-term case for ETFs such as the Invesco ESG Nasdaq 100 ETF (QQMG) and the Invesco ESG Nasdaq Next Gen 100 ETF (QQJG) remains vibrant and that’s something advisors should acknowledge.
Multiple reasons support that school of thought. First, there’s an emerging view that ESG investing is less about ideology and more about applying a set of standards aimed at identifying quality securities. Second, ESG investing and related ETFs remain popular among young, values-based investors, indicating advisors have good reason to continue monitoring funds such as QQJG and QQMG.
QQJG, QQMG Still Have Utility
When an asset class is the subject of controversy and negative press, it can be hard for investors to see the forest through the trees, but there’s still long-term merit with QQJG and QQMG.
“Their main argument is that evaluating a company’s environmental and societal impacts is not just idealism; it’s a form of due diligence. If a car company ignores climate change, for example, that company is likely to miss opportunities as its competitors invest in electric vehicles — and that’s important information for an investor,” reported Nathan Place for Financial Planning.
Add to that, younger investors remain enthusiastic about ESG and sustainable investors. That’s a point for advisors to consider because as the great wealth transfer gains momentum and as more young people enter the workforce, more assets will accrue to millennials and Gen Zers – two generations that represent the future of the wealth management industry.
“Importantly, enthusiasm for ESG was even higher among young investors — 96% of millennials and 85% of Generation Z expressed interest in the products. And as these Americans approach their peak earning years — the oldest millennials are now 43, while the oldest Gen Zers are 27 — they’re becoming an important client base for wealth managers to cultivate,” according to Financial Planning.
Advisors cannot afford to ignore the fact that younger investors still want access to ESG funds. In what could be positive long-term news for assets like QQJG and QQMG, Cerulli estimates that by 2045, millennials and Gen Zers will have inherited a staggering $72.6 trillion in assets.
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