Investing involves risk. That’s just the lay of the land. Even cash can expose its holders to risk. Hold too much of it when inflation is high or when interest rates fall and cash’s power is diminished. That doesn’t all of investing is a minefield.
There are avenues for reducing risk, even with stocks and ETFs like the Invesco ESG Nasdaq 100 ETF (QQMG) and the Invesco ESG Nasdaq Next Gen 100 ETF (QQJG). Indeed, environmental, social and governance (ESG) investing spent some time being skewered in the court of public opinion. But lost in that conjecture is that fact ESG can be a risk mitigation strategy.
QQJG and QQMG aren’t risk-free bets. But the Invesco ETFs can dampen some of the risk investors are forced to take when hunting for the returns offered by equities. Think about it this way: Market history is littered with examples of stock’s tumbling on the back of environmental disasters. That highlights the advantages of excluding companies with potential environmental/climate risks from portfolios.
Focus on the Bottom Line
Further highlighting the benefits of ETFs such as QQJG and QQMG are the costs associated with negative ESG events. Cleaning up environmental problems is costly and time-consuming. The same is true of the legal battles companies face when they run afoul of proper social and governance standards. That’s in addition to the specter of reputational costs and risks.
“Unlike values-based investing, which reflects personal beliefs, ESG risk management uses sustainability factors to spot potential problems before they hit the bottom line. Factoring in ESG factors early can give you a clearer view of risks (and opportunities) before they show up in earnings reports or stock performance,” reported Debbie Carlson for Brittanica Money.
Said another way, ESG events can and do end up on companies’ bottom lines. But the indexes tracked by QQJG and QQMG aim to lower the probabilities of ESG events adversely affecting member firms. Not only do the ETFs’ benchmarks exclude defense, fossil fuel, and gambling companies, among others, the gauges are linked to the United Nations Global Compact principles. Those principles seek to reduce exposure to controversial businesses. Arguably, more companies should be adhering to such protocols. That’s because it’s an avenue for potentially rewarding investors.
“Companies that integrate ESG risk factors into traditional risk management gain a better understanding of their industry and their vulnerabilities within it. This broader perspective helps them build long-term resilience by anticipating potential risks before they appear in financial results,” according to Brittanica Money.
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