One of the widely mentioned criticisms of environmental, social. and governance (ESG) funds is greenwashing, or sprucing up a fund in such a fashion that its ESG credentials are overstated.
Greenwashing is also prompting investors, many of whom are enthusiastic about ESG, to ponder if the funds they are embracing are green enough. The Invesco ESG Nasdaq 100 ETF (QQMG) is a prime example of an ESG exchange traded fund that’s “green enough” and then some.
QQMG follows the Nasdaq-100 ESG Index, which is the ESG counterpart to the widely observed Nasdaq-100 Index (NDX). That’s solid DNA when it comes to offering investors legitimate ESG credentials.
“Investors poured $69.2 billion into ESG funds (also known as sustainable or impact funds) last year, an annual record, according to Morningstar,” reported Greg Iacurci for CNBC. “These funds come in a variety of flavors. Some may seek to promote gender or racial equality, invest in green-energy technology or avoid fossil-fuel, tobacco, or gun companies, for example.”
QQMG’s lineage is something of an advantage. The Nasdaq-100 Index is a collection of the 100 largest Nasdaq-listed stocks by market value, excluding the financial services sector. That keeps QQMG investors away from potential offenders in that sector.
Additionally, the Nasdaq-100 is, historically, a growth-heavy index. To that end, the index rarely includes energy and utility stocks — two groups that could encounter ESG problems. Today, neither sector is represented in QQMG.
QQMG, which debuted last October and holds 95 stocks, addresses the issue of fluidity that’s apparent in some active ESG strategies. Simply because a fund purports to be ESG doesn’t mean that it is.
“Some fund managers may ‘integrate’ ESG values when picking where to invest money, but it may only play a supporting (and not a central) role. Conversely, other managers have an explicit ESG mandate that acts as the linchpin of their investment decisions,” according to CNBC.
For its part, QQMG avoids greenwashing with a straightforward methodology that includes excluding companies from the following industries: “alcohol, cannabis, controversial weapons, gambling, military weapons, nuclear power, oil and gas, and tobacco.”
That methodology is paired with United Nations Global Compact principles, which further enhances QQMG’s ESG resume. In addition to excluding energy, financial services, and utility stocks, QQMG’s environmental credentials are enhanced by the fact that the ETF features no exposure to materials and real estate stocks — two groups that are still in the early innings of their sustainability enhancing journeys.
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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.