According to a recent survey conducted by Morgan Stanley Institute for Sustainable Investing and Cerulli Associates, sustainable investments are the most popular among millennials. On the other hand, most financial advisors exhibited little or no interest to the investment theme as many cited the perception of historical negative performance as a major deterrent.
Nevertheless, academic studies have shown that sustainable investments like ESG integration have resulted in improved risk-adjusted returns. Nimeri pointed to a recent Oxford University study that revealed 88% of research showed effective management of ESG issues results in better operational performance of companies.
For those interested in including an ESG theme into a diversified investment portfolio, the FlexShares STOXX US ESG Impact Index Fund (NasdaqGM: ESG) and FlexShares STOXX Global ESG Impact Index Fund (NasdaqGM: ESGG) allow retail investors to easily access an institutional-level investment strategy.
The funds are 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. The resulting indices provide positive risk-adjusted return characteristics and improve diversification via style and sector neutrality.
“We believe this fund can serve as a core blend equity allocation appropriate for broad equity market exposure,” according to FlexShares.
Financial advisors who are interested in learning more about ESG investments may watch the webcast here on demand.