Environmental, social, and governance (ESG) principles are increasingly important to professional asset allocators and retail investors, but how these market participants prioritize ESG is an interesting phenomenon in its own right.
A new survey by Verdantix, an independent advisory and research firm, indicates that 58% of those polled are looking for avenues to buffer portfolios against the negative effects of climate change. That could provide opportunity with a variety of exchange traded funds, including the Invesco ESG S&P 500 Equal Weight ETF (RSPE).
RSPE, which debuted last November, follows the S&P 500 Equal Weight ESG Leaders Select Index. While the intent of that index is to provide broad exposure to companies with favorable ESG scores, it’s also a more than adequate avenue for investors seeking exposure to companies with climate change credentials. RSPE and its underlying index are also important today because more market participants are placing an emphasis on ESG ratings and scoring.
“However, the study found buy-side investors are very concerned about the quality of ESG data available to them. With regards to geo-spatial data solutions, which describe objects, events, or other features with a location on or near the surface of the earth, just 30% of survey respondents say the quality is very high, and 47% say it is low or very low,” notes Verdantix.
Adding to the near-term case for RSPE is the point that many market participants are currently leery about the quality of ESG data available to them.
RSPE could ameliorate that scenario because the S&P 500 Equal Weight ESG Leaders Select Index employs a data-rich approach. Member firms of that benchmark “provide up to 1,000 data points in response to the questionnaires which is used to score each company’s performance in relation to each specific ESG subject,” according to Invesco.
RSPE’s approach is relevant at a time when end users of ESG products are demanding more clarity and reliability regarding ESG ratings.
“A key challenge highlighted by our research is that data outputs from ESG vendors are perceived in the investor market to have varying levels of validity. There is clear demand for better quality data, increased transparency around methodologies used, and a greater degree of standardization,” says Kim Knickle, Verdantix research director.
Regarding RSPE, 186 stocks make the cut for entry into the ETF. About 37% of those names are value stocks while about 15.2% are growth equities. The technology, industrial, and financial services sectors combine for over 46% of the ETF’s roster.
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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.