“Regulation” is often seen as a four-letter word in financial markets, but when it comes to environmental, social, and governance (ESG) investing, professional investors want more oversight of ESG. Over time, that could be a positive for exchange traded funds such as the Invesco ESG Nasdaq 100 ETF (QQMG).
QQMG is arguably elegant in its simplicity, and at a time when asset allocators are increasingly concerned with greenwashing and overstated ESG claims, simplicity could be the way to go in the ESG investing arena.
While there are differences at the regional level, a recent survey of Bloomberg Terminal reveals that those investors want more oversight of the ESG space and want to see steps taken to reduce the number of hyperbolic ESG claims permeating the market today.
“A Bloomberg News survey of ESG-related issues found that 53% of 550 Terminal users want more rules to help them tackle environmental issues. The picture varies across regions, with Europeans more in favor of extra regulations than Americans, while both regions gave green issues priority over social or governance matters. In Asia, where efforts to regulate ESG are trailing those in Europe and the US, a majority of survey respondents wanted more rules across the board,” according to Bloomberg.
QQMG and its stablemate, the Invesco ESG NASDAQ Next Gen 100 ETF (QQJG), are just over a year old, but despite the ETFs’ lack of age, they are relevant at a time when investors are demanding clarity on exactly what constitutes ESG and are applying more regulatory scrutiny to companies using that label.
QQMG and QQJG employ traditional exclusionary practices, avoiding companies that could encounter ESG controversies, while adding another wrinkle. Member firms in the ETFs “must be deemed compliant with the United Nations Global Compact principles, meet business controversy level requirements, and have an ESG Risk Rating Score that meets the requirements for inclusion in the Index,” according to Invesco.
Another advantaged possessed by QQMG and QQJG is that their methodologies are sound and reliable. That cuts down on greenwashing concerns while presenting investors with credible options at a time when there’s limited uniformity in ESG scoring.
“Much of the concern among fund managers and corporations centers on the lack of reliable data, with financial professionals pinpointing ESG ratings as a key weakness. That’s as scores intended to measure corporate performance on environmental, social and governance factors remain largely unregulated,” according to Bloomberg.
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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.