Owing to a broadening landscape of environmental, social, and governance (ESG) exchange traded funds, more are carving out niches in the sustainability arena, prompting investors to think that ESG and sustainable investing are the same concept.
ESG and sustainability are in fact similar, but they are not the same idea. However, some ETFs more seamlessly blend these two concepts. That group includes the Invesco ESG Nasdaq 100 ETF (QQMG).
“‘Sustainable investing’ is an umbrella term referring to investment strategies that seek competitive risk-adjusted returns alongside positive environmental, social, and governance outcomes. In so doing, it supports the transition to a more sustainable version of capitalism, which is focused on creating value for all stakeholders, rather than a focus only on shareholder primacy,” wrote Morningstar analyst Jon Hale.
QQMG, which follows the Nasdaq-100 ESG Index, offers investors an avenue to both robust ESG credentials and sustainability inroads. QQMG’s index excludes companies engaged in industries “such as alcohol, cannabis, controversial weapons, gambling, military weapons, nuclear power, oil & gas, and tobacco,” according to Invesco.
That bolsters the ETF’s broader ESG resume. To the point about sustainability, QQMG member firms must comply with the United Nations Global Compact principles. QQMG’s broad approach heightens the fund’s relevancy at a time when investors are demanding this from ESG and sustainable investing strategies.
“Investors integrate ESG information to give them a broader perspective on a company than they get using financial metrics alone. That provides greater insight for investment decisions. In turn, this investor focus on ESG sends a signal to companies that investors believe it is important for them to address ESG issues that are material to their business,” added Hale.
QQMG holds 95 of the stocks found in the traditional version of the Nasdaq-100 Index. Translation: This is a growth-heavy fund with limited exposure to value equities and no exposure to energy stocks — two segments that are holding up relatively well this year.
In other words, investors who backed ESG funds such as QQMG at the start of this year are right to be frustrated about rough performances. However, investors may be rewarded by remembering why they opted for ESG in the first place and employing long-term approaches.
“While sustainable investing includes a range of specific approaches, no sustainable fund is going to outperform all the time. The long-term thesis remains that, on balance, companies that embed sustainability into their operations, human capital, and governance will prosper more than those that don’t as we move through the first half of the century,” concluded Hale.
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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.