This has been a banner year for environmental, social, and governance (ESG) exchange traded funds, including the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG) and the FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG).
With 2020 nearly over, it pays to examine some of the factors driving increased adoption of ESG ETFs this year.
“Two unforeseen events, the global pandemic and the murder of George Floyd underscored the importance of the stakeholder-capitalism model, which focuses on creating sustainable long-term value that serves all stakeholders and creates positive societal impacts,” writes Morningstar analyst Jon Hale. “This, more than anything, is the ultimate purpose of sustainable investing: to weigh in with investment capital in support of the stakeholder model.”
FlexShares’ ESG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® USA ESG Impact Index. The underlying 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® USA 900 Index, a float-adjusted market-capitalization weighted index of U.S.- incorporated companies. Under normal circumstances, the fund will invest at least 80% of its total assets in the securities of the underlying index.
Expect More in 2021
When it comes to advisors and investors embracing ETFs like ESG and ESGG, one thing is clear: 2020 is the start of something more substantial, not a one-off occurrence.
ESG-focused ETFs have been the beneficiaries of investor interest in ETFs as a whole. With a more socially conscious investor, getting access to the issues they care about can be had via the convenience of an ETF wrapper.
“This focus on corporate responses to the pandemic created greater awareness among investors for the importance of the “social” dimension of environmental, social, and governance analysis,” notes Hale. “Most professional ESG analysis emphasizes these areas, particularly in industries and for companies where they are most material to financial performance, but many end investors have had the impression that sustainable investing is mostly about the “environmental” dimension of ESG, especially climate change.”
Big tech has been one of ESG’s biggest backers as companies like Microsoft, Google, and Amazon have hopped on board the ESG bandwagon.
ESG has had a stellar year, rising above and beyond expectations in a rough 2020 year for the capital markets. Can ESG pull off a repeat performance in 2021?
For more on multi-asset strategies, visit our Multi-Asset Channel.
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.