A positive for investors emphasizing social responsibility and environmental sustainability is that more companies and governments are emphasizing those virtues too.
So are fund issuers, and it seems like the universe of related exchange traded funds expands on a weekly basis. That’s good because it presents investors with more choice. However, the downside is that there’s more noise and commotion in the environmental, social, and governance (ESG) space than ever before.
One fund that stands out as an avenue for ameliorating that situation is the Goldman Sachs Future Planet Equity ETF (GSFP).
“Environmental, Social, and Governance ratings have become a key focus for companies and investors. By achieving good ESG ratings, a company can receive positive market recognition. As a result, companies now tend to spend more time and effort on improving ESG ratings in order to attract investors,” according to IHS Markit. “ESG ratings are relevant to passive-fund investors tracking bespoke indices. But not all investors rely on ESG ratings. Active-fund investors are more likely to exercise active ownership through direct engagement with companies on ESG topics.”
The commentary on active ESG strategies is directly relevant to the newly minted GSFP because the Goldman Sachs fund is actively managed. At a time when more scrutiny is being applied to ESG ratings and methodologies, GSFP could be a relevant consideration for investors because, as an active ETF, it’s not constrained by index requirements, some of which can fall short on the ESG front or are in need of modernization.
“ESG rating agencies vary by rating system and methodology. They are ideal for investors getting familiar with ESG and provide an overview of a company’s performance in this area,” adds Markit. “However, ESG ratings may not provide the complete picture. They are generally based on public disclosures, which vary in quality and reporting framework. Meanwhile, as touched on above, there is a lack of consistency in terms of methodology, measurement, and definition across ESG rating agencies.”
Another advantage of GSFP is focus. Many ESG ETFs, including passive funds, attempt to offer breadth and depth, and in those efforts, the products can become unwieldy and not adequately address one or more of the three ESG tenants. Conversely, GSFP focuses on companies working to reduce greenhouse gas emissions. Said another way, GSFP has one job, and it’s doing that job.
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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.