As advisors increasingly direct client dollars to environmental, social, and governance (ESG) exchange traded funds, the need for clarity and transparency is rising, too.
That’s the result of a more savvy client base that’s consistently placing more emphasis on sustainability and ESG principles. That is to say, advisors can’t just present clients with any old ESG ETF and hope that they’ll be pleased.
Enter the Invesco ESG S&P 500 Equal Weight ETF (RSPE) as a viable solution for ever-demanding, ESG-attuned clients.
“As their clients make these demands, asset management firms are required to come up with a methodology to measure the sustainability of their portfolio companies. ESG is particularly important for the clean energy transition, because one of the most significant ways investors judge the ‘E’ component of ESG is through gauging the carbon reduction goals of particular companies,” reports Rachel Bitutsky for GreenBiz.
In today’s evolving ESG landscape, one of the primary challenges facing fund issuers and money managers is how to credibly assess and apply ESG factors. That’s an issue that needs addressing, and RSPE is a place to turn for that clarity.
“The broadest ESG challenge facing financial services firms is how to establish and use objective metrics to assess ESG factors. The SEC’s new climate-related risk disclosure guidelines are only one component of greater standardization needs. Asset management firms often rely on rating agencies — independent, profit-seeking research firms — to provide ESG-related information, which frequently differs significantly from agency to agency,” according to GreenBiz.
RSPE delivers the goods in terms of data-rich, transparent ESG scoring. The ETF, which debuted last November, focuses on companies that are nimble enough to participate in and respond to “emerging sustainability opportunities and challenges.”
That’s one reason that RSPE’s status as a new ETF is a positive, not a negative. Conversely, many established funds in this category simply exclude certain companies arbitrarily deemed “controversial.” That strategy has some merit, but it’s not a guarantee of access to the companies with the best sustainability, and it’s likely not robust enough for more sophisticated ESG investors.
The Invesco ETF also addresses lack of uniformity and opaqueness in ESG scoring with a fresh, easy-to-understand approach.
ESG ratings firms drum up data that “does not always seem to correspond. Some have cited State Street research to suggest a less than 55 percent correlation between the two major agencies’ ratings. Perhaps relevantly, a closer look reveals ambiguities in their methodologies,” adds GreenBiz.
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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.