ESG investing continues to gain importance. Even investors who don’t politically align with many of the principals behind ESG understand that systemic risk can impact returns and that the smart money is on companies that can mitigate systemic risk.
As Brad McMillan notes for Forbes, “To use an appropriate metaphor, historically we have looked at companies (i.e., trees) without looking at the wider economy (i.e., the forest). And that made sense, because historically the trees could thrive independently of the forest. The health of the forest was assumed to be fine, regardless. And if that is the case, why worry about it? What we have learned over the past 20 years, though, is that if the forest is threatened, so are the trees.”
The Invesco S&P Equal Weight Fund (RSP) uses a novel strategy of equally weighting allocations across the S&P 500. This diversifies exposure and avoids overweighting. Equal weighting tends to outperform more conventional strategies. Merging that tactic with ESG, as is done with the Invesco ESG S&P Equal Weight Fund (RSPE), brings together two great flavors of investing.
ESG Is in the Screeners
Despite its surge in popularity, ESG investing is still young, and the methodologies for how it is approached are still evolving. General ESG metrics can be vague and open the door for green-washing, and conversations are ongoing for how to have the most actual impact.
This is why RSPE’s ESG methodology is particularly impressive. RSPE takes the universe of the S&P 500 and screens out an array of companies based on a granular list of exclusions that includes:
- Arctic oil & gas exploration
- Alcoholic beverages
- Assault weapons
- Cannabis production or distribution
- Controversial weapons
- Genetically modified plants and seeds
- Military contracting
- Nuclear power
- Oil and gas exploration, production, generation, refinement, transportation, and storage
- Oil sands extraction
- Palm oil production and distribution
- Riot control weapons
- Shale energy extraction
- Small arms
- Thermal coal
This specificity gets around some of the issues that broader ESG screeners fall into, where oil and gas companies can end up in ESG funds on a technicality, or environmentally conscious weapons firms can sneak into an ESG index that only focuses on the environment.
RSPE also retains the same advantage of broad, diversified exposure that makes RSP such an effective fund.
Sustainable investing currently sits at $8 trillion today. According to an article in Barron’s, it could reach $30 trillion by the end of the decade.
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