Environmental, social, and governance (ESG) investing is garnering ample support among both retail and professional investors.
That bode wells for long-term adoption of ESG exchange traded funds, including the Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST). Potentially adding to the long-term outlook for ESG ETFs such as JUST is the point that pension funds are among the institutional investors embracing ESG.
As Morningstar’s recent “Voice of the Asset Owner” survey indicated, ESG is an increasingly important part of the pension investment selection process.
“The respondents said their use of ESG was driven by both client demand and their conviction in the strategy. They used ESG factors because of wider public awareness and support, as well as regulation that endorses asset owners taking a broader view of their responsibilities, particularly in Europe,” noted Morningstar analyst Leslie Norton.
Professional investors, including pension managers, have good reasons for embracing ESG, and there are lessons in there for retail investors.
“The respondents used ESG to enhance their investment processes and to help drive sustainable development. Most saw ESG as a financial factor and considered ESG objectives as valid goals when pursued alongside—but not at the expense of—financial objectives,” added Norton.
For advisors and retail investors, JUST fits into the equation because although the fund is more than four years old, making it seasoned in the ESG ETF category, it is a standout in the group for multiple reasons. First, owing to its breadth and comparable sector exposures to broad market benchmarks, JUST is a credible alternative to basic beta funds for investors seeking ESG exposure.
Second, JUST doesn’t simply focus on environmental issues as so many of its competitors do. Rather, the Goldman Sachs ETF is a pioneer in bringing stakeholder capitalism to a broader swath of investors. Stakeholder capitalism, which could well be an issue that institutional market participants emphasize in the future, takes into account how capitalism can benefit constituencies beyond executives and investors.
Ease of use and efficiency are other traits that are supportive of long-term growth for JUST, and that’s exactly what many investors, regardless of status, are looking for.
Investors “are looking for simpler, more-standardized measurements, as well as better transparency about underlying data. Another problem is low correlations between the ratings of different ESG data providers, which “reflects a trade-off between the benefits of standardization and the value of independent thought,” concluded Norton.
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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.