Evidence is mounting that the idea of ethical investing, which has been made more prominent by environmental, social and governance (ESG) exchange traded funds, has long-lasting momentum. That could benefit funds such as the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG) and the FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG).
The growth of the ESG may be associated with more people investing with their core values. Three-quarters of global individual investors and 71% in the U.S. noted that it is important to align investments with their values and ethics. While there is a feel-good component to the category, ESG or sustainable investments may also enhance a long-term portfolio.
“Investors are pouring cash into funds that use environmental, social and governance criteria to screen the companies they invest in,” reports Darla Mercado for CNBC. “Even passive investors are jumping in: There were 534 sustainable index mutual funds and exchange-traded funds globally, accounting for $250 billion as of June 30,” according to Morningstar.
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.
Ethical Investing: No Time Like the Present
“While ESG strategies are gaining momentum stateside, it could be a while before they become as popular as they are in Europe,” notes CNBC. “In fact, Europe accounts for more than 75% of global assets in sustainable passive funds, according to Morningstar.”
The widespread proliferation of environmental, social and governance investments will require global data standards and regulations to further progress.
Give the breadth of various ESG indices, regulators and policy makers are concerned that companies will embark on “rating shopping” tours to pick the ESG index provider for an index that best suits their ESG narrative.
About 20% of assets in ESG funds are derived from investors in the U.S., indicating there’s ample room for growth as more advisors warm to ethical strategies.
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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.