It was another strong year for environmental, social, and governance (ESG) investing, with record investor money pouring into ESG-focused funds through the month of November.
“Investors concerned about climate change and social justice had a bumper year in 2021, successfully pushing companies and regulators to make changes amid record inflows to funds focused on environmental, social and corporate governance (ESG) issues,” a Reuters article notes.
As mentioned, demand for ESG translated into massive inflows for ESG-related funds. That should carry over into 2022, especially with a continued focus on climate control and renewable energy.
“A record $649 billion poured into ESG-focused funds worldwide through Nov. 30, up from the $542 billion and $285 billion that flowed into these funds in 2020 and 2019, respectively, the latest Refinitiv Lipper data shows,” the article adds. “ESG funds now account for 10% of worldwide fund assets.”
“Stocks of companies rated highly for their sustainability efforts also notched gains,” Bloomberg notes further. “The MSCI World ESG Leaders’ index has risen 22% so far this year, compared with the MSCI World Index’s gain of 15%.”
Getting Global ESG Exposure
With ESG headed for another banner year in 2022, investors can get exposure with ETFs like the FlexShares STOXX Global ESG Impact Index Fund (ESGG). Its top holdings as of December 23 show big tech holdings like Apple, Amazon, and Microsoft — highlighting a move by Silicon Valley to incorporate more ESG initiatives.
Per the fund’s description, ESGG seeks investment results that correspond generally to the price and yield performance (before fees and expenses) of the STOXX® Global ESG Select KPIs Index. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® Global 1800 Index, a float-adjusted market capitalization-weighted index of companies incorporated in the U.S. or in developed international markets.
The fund uses the index as its starting point and then sifts through companies by weeding them out based on the following criteria:
- Companies that do not adhere to the UN Global Compact principles
- Companies involved in controversial weapons
- Coal miners
“The FlexShares STOXX Global ESG Impact Index Fund (ESGG) tracks a proprietary STOXX index that rates companies based on environmental, social and governance factors that influence risk and return, such as workplace safety, executive compensation, and board diversity,” an ETF Database analysis says. “The portfolio is weighted in favor of the best performers.”
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