Environmental, social, and governance (ESG) investing will continue to be a force to be reckoned with in 2022, with some analysts saying that it will essentially drive the capital markets.
Given that, ESG is no longer a niche investing alternative, but a global phenomenon. In 2021, $120 billion flowed into ESG-related exchange traded funds (ETFs), and that record could be beat in 2022.
“We are seeing 2022 as the year when ESG not only becomes mainstream, but it starts driving markets a lot more,” said Jefferies’ global head of ESG and sustainability research, Aniket Shah, on Yahoo Finance Live. “And the reason why this will happen is because core parts of the financial system, including the central banks, are going to become even more serious about climate change as they are today.”
A Pair of Climate Change ETFs
ESG strategies can be sliced and diced into various niche investing categories. For prospective ESG investors looking to get climate change exposure specifically, here are two funds to consider: the FlexShares ESG & Climate Investment Grade Corporate Core Index Fund (FEIG) and the FlexShares ESG & Climate High Yield Corporate Core Index Fund (FEHY).
FEIG seeks investment results that correspond generally to the price and yield performance of the Northern Trust ESG & Climate Investment Grade U.S Corporate Core Index. The fund applies a multi-dimensional ESG framework, incorporating exclusions across ESG controversies and business involvement while seeking to deliver ESG uplift.
At the heart of the strategy is the Northern Trust ESG Vector Score, which is focused on financial materiality and aligned with industry standards, the Sustainability Accounting Standards Board (SASB), and the Tax Force on Climate Related Disclosures (TCFD), integrating not only historic metrics and indicators, but also those that assess how exposed a company may be to future risks and opportunities. It places intentional emphasis on reducing climate transition risk by reducing ISS carbon emissions intensity and improving ISS Carbon Risk Rating.
FEHY seeks investment results that correspond generally to the price and yield performance of the Northern Trust ESG & Climate High Yield U.S Corporate Core Index. FEHY uses the same Vector Score strategy that FEIG does in order to sift through a vast universe of high-yield options in order to find debt holdings that emphasize climate change while also offering the substantial-yield fixed income that investors crave in today’s low-rate environment.
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