As the environmental, social and governance (ESG) ETFs landscape flourishes, investors have more options for reaching asset classes beyond domestic equities. The FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG) provides exposure to global stocks, including an array of markets outside the U.S.
ESGG is based on the STOXX Global ESG Impact Index, which screens companies scoring better with respect to a select set of ESG key performance indicators (KPIs), with the bottom 50% of such companies based on their ESG KPI scores excluded from the Index, as are companies that do not adhere to the UN Global Compact principles, are involved in controversial weapons or are coal miners.
Thanks in part to adoption among younger investors, ESG is a fast-growing part of the broader investment lexicon. Over one-quarter of assets under management globally, or over $22 trillion, are now allocated to investments with ESG factors that can materially affect a company’s performance and market value. ESG integration, or the systematic and explicit inclusion of ESG factors in financial analysis, has been steadily expanding at 17% per year.
The Domestic Counterpart
ESGG’s domestic counterpart is the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG).
Data for environmental, social and governance (ESG) has been an ongoing challenge in the space, but signs are apparent that the area is improving. This could certainly help ease investor fears at a tenuous time where trade wars and inverted yield curves are on their minds.
Sustainability themed investing selects assets related to sustainability in single- or multi-themed funds. Corporate engagement and shareholder action use shareholder power to influence corporate behavior. Norms-based screenings hone in on investments against minimum standards of business practices based on international norms. Lastly, ESG integration seen as a systematic and explicit inclusion by investment managers of ESG risks and opportunities into traditional financial analysis.
Data suggest there’s ample room for ESG ETF growth in the years ahead. There are 87 ESG-related ETF products with about $16 billion in assets under management, which is only a fraction of the larger $4 trillion ETF industry. On the other hand, Europeans have been more receptive of the ESG-theme, with $124 billion in Europe-listed ESG ETFs.
For more information on the ESG theme, visit our socially responsible ETFs category.
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.