Hyperbole Abounds in Talk of ESG Demise | ETF Trends

Much has been made of the political criticism of ESG investing. That debate is often framed as a “war.” That has elicited concerns about winners and losers — talk that is relevant to ETF investors and issuers.

The debate could result in a long-term positive for ETFs such as the Invesco ESG Nasdaq 100 ETF (QQMG) and the Invesco ESG Nasdaq Next Gen 100 ETF (QQJG). Both ETFs have delivered stout returns over the past year. That has allayed concerns about ESG principles potentially weighing on investor outcomes.

Obviously, performance is what advisors and investors focus on. ESG investment regulations are tipped to increase in the years ahead. So methodology is going to matter more. On that front, QQMG and QQJG are ahead of the game. That’s because these are among the ESG ETFs that addressed greenwashing concerns from the start. That, coupled with strong performance, could be a potent combination.

ESG Investing Still Top Priority

One of the common assumptions or reactions to increased ESG criticism is that the investment style’s merit is fading. Fortunately for funds such as QQJG and QQMG, the opposite appears to be true. For example, some large asset managers and ETF sponsors have seen ESG assets under management increase over the past two years. That is a period in which ESG critiques surged.

“Ninety per cent of companies recently surveyed by KPMG said they planned to dedicate more resources to ESG, not less,” reported Jeevan Vasagar for Tortois. “One of the challenges for ESG investing is the conflict between investors driven by values – who want to exclude tobacco companies or the arms industry on principle, for example – and those who want to use ESG to screen out potential risks, such as companies whose supply chains are not environmentally sustainable.”

Regarding that challenge, QQJG and QQMG are potentially appealing to asset allocators. That’s because both ETFs take traditional ESG exclusionary approaches while employing the United Nations Global Compact principles. Those principles can guide in terms of avoiding ESG risk.

Another concern — one specific to the “E” — is that domestic electoral outcomes later this year could alter the renewable energy landscape. But those fears could be overblown, indicating the possibility of minimal risk to QQJG and QQMG.

“The falling cost of renewables and the fact that most of the benefits from the Inflation Reduction Act – which accelerates the shift to clean energy – flow to Republican states, will make it hard to block the green transition,” according to Tortois.

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