Environmental, social and governance (ESG) investing isn’t stopping anytime soon and that reflects in the 22% year-to-date gain in the FlexShares STOXX Global ESG Impact Index Fund (ESGG).

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 U.N. 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 said. “The portfolio is weighted in favor of the best performers.”

ESGG Chart

ESGG data by YCharts

Bespoke ESG Investing Ahead?

Still a relatively nascent industry, the ESG space continues to evolve. Rather than investors getting all-inclusive exposure to ESG, they may soon be able to tailor their investments.

A Wall Street Journal article delved into the ways ESG will change within the next five years, and one trend they noted will be an investor’s ability to get bespoke ESG. It would allow an investor to essentially create their ESG exposure from scratch.

“In five years, the biggest change we’ll see in ESG investing is the continued growth of customizing ESG screens to fit an investor’s own values,” said Derek Tharp, assistant professor of finance at the University of Southern Maine and the founder of Conscious Capital. “As direct indexing and the ability to own and trade fractional shares becomes a more viable solution for a greater number of investors, that opens the door to allow investors to exert greater control on the precise screens they want to apply to their portfolios.”

“Rather than a blanket environmental focus, an investor could build a portfolio that aligns with their own precise views on a range of environmental issues,” Tharp noted.

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