An easy forecast to make for 2023 and one that doesn’t involve predicting market performance involves ongoing evolution for environmental, social, and governance (ESG) strategies. Long story short, ESG-enthused investors should expect more in the form of regulation, efforts to quash greenwashing, more ESG-related refinancing, and more focus on ESG reporting and scoring, among other issues. To adequately prepare for those trends and others, investors may want to consider broad approaches such as the Invesco ESG S&P 500 Equal Weight ETF (RSPE).
RSPE is the ESG counterpart to the Invesco S&P 500 Equal Weight ETF (RSP), the largest and most venerable equal-weight ETF on the market today. As such, RSPE is uniquely positioned to be an ally to investors looking thrive in a changing ESG landscape. Change is to be expected.
“Efforts continue to standardize metrics, filing requirements, and scales. Mandatory reporting requirements need sorting given the diverse regulatory ask to date have the potential to be overwhelming and expensive. Ultimately, the market wants consistent reporting from all participants,” according to FactSet.
Greenwashing is among the other issues underscoring RSPE’s relevance to ESG investors. The ETF follows the S&P 500 Equal Weight ESG Leaders Select Index, which takes a simple approach to ESG, but one that can steer investors clear of greenwashing controversies. That’s something to ponder, because methodology always matters as regulators take aim at asset managers that inaccurately apply the ESG label.
“Pressure on fund companies will remain high for greenwashing, fund naming, and tightening holdings and risk analysis. Consistent definitions among global regulators of what risks are and how to measure avoidance could help. In addition to a greater definition of key exposures or material factors, the relatively new development of risks described as Principal Adverse Impact Indicators (PAIs) for application in 2024 will initially layer more complexity on understanding exposures,” adds FactSet.
Beyond ESG perks, RSPE offers investors the traditional benefits associated with broad market equal-weight strategies, including reduced concentration risk. None of the ETF’s 183 holdings exceeded a weight of 0.66% as of Jan. 23, according to issuer data.
Additionally, RSPE taps into the size and value factors — two of the primary determinants of equal-weight out-performance over extended holding periods. Nearly a third of the ESG ETF’s holdings are classified as value stocks and roughly 49% reside in mid- and small-cap territory.
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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.