Environmental, social, and governance (ESG) principles are taking on increasing importance at the corporate level, and with that come investment implications.
It’s possible that as more publicly traded companies hone ESG strategies — which many are already doing — more investors will gravitate to ESG, stoking increased interest in exchange traded funds such as the Invesco ESG Nasdaq 100 ETF (QQMG).
QQMG follows the Nasdaq-100 ESG Index, which is the ESG counterpart to the widely observed Nasdaq 100 Index (NDX). That DNA is meaningful because NDX itself is home to a plethora of companies with solid ESG credentials. QQMG’s underlying index takes things a step further by excluding NDX firms that aren’t yet up to snuff on that front. It’s a relevant strategy at a time when companies of all stripes are prioritizing the investment strategy.
“Some 90% of companies either have or are developing a formal strategy to manage corporate environmental, social, and governance practices, according to a Morningstar Sustainalytics survey of 556 corporate social responsibility and sustainability professionals,” wrote Morningstar analyst Allie McCallion. “Corporate sustainability teams are increasingly at the center of important business discussions, based on an intensifying stakeholder focus on ESG issues, expanding investor expectations, and shifting approaches to climate change and regulation.”
The increasing focus on ESG is pertinent to investors because scores of studies show that companies which emphasize ESG often deliver superior returns for investors. That further highlights the utility of QQMG because the ETF removes the burden of stock picking among strong ESG companies.
“Given how central environmental and social factors are to a company’s success, it stands to reason that their oversight shouldn’t be sidelined within a company’s strategy. Companies that are proactive on corporate sustainability measures are able to drive a long-term advantage for their shareholders,” noted Morningstar analyst Alyssa Stankiewicz.
For now, there’s more emphasis on the “E” than the “S” and the “G.” That’s likely the case because it’s easier for companies to rapidly affect environmental change, but that’s likely to change over time as QQMG member firms are pushed by external stakeholders to emphasize social and governance issues.
“This being said, social and governance topics are still playing a major role in strategy development across industries. Occupational health and safety are ranked as a priority by 58% of respondents, human capital management by 51%, and human rights by 48%,” concluded Morningstar’s McCallion.
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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.