One of the big reasons why environmental, social, and governance (ESG) exchange traded funds raced to assets under management records last year — and are expected to continue doing so this year — is institutional adoption.
In recent years, insurance companies more broadly adopted ETFs. Now, they’re placing ESG criteria in their investment evaluation processes, notes global insurance asset management firm Conning. It remains to be seen if that will drive insurance companies to ESG ETFs, but over time, it could be a plus for funds such as the Invesco ESG S&P Equal Weight Fund (RSPE).
RSPE is just two months old, so it could take some time for the fund to pop up on the radars of institutional investors, but coming to market at a time when more institutional investors are implementing ESG criteria could prove beneficial to the new Invesco offering. Insurance providers in particular are keen on ESG investments.
“While U.S. insurers have long considered ESG and climate-related risks in underwriting, many U.S. insurers have only recently started to evaluate their investments using ESG criteria,” according to Conning. “The survey suggests their engagement with ESG investing factors may be accelerating – 41% of respondents indicate that they began incorporating ESG factors this past year, 79% the past two years, and only 12% more than two years ago. A total of 67% reported incorporating ESG factors into their investment considerations in 2021.”
As Conning observes, insurance providers in other parts of the world more rapidly embraced ESG investments than their U.S. counterparts with those American companies displaying some resistance on the basis of performance. However, ESG funds are consistently answering the performance call, and RSPE’s non-ESG cousin — the famed Invesco S&P 500® Equal Weight ETF (RSP) — has a vaunted track record of its own.
“ESG has been and will continue to be central in conversations with clients about investment strategies moving forward, especially given an increasing regulatory and social focus on a range of issues including global environmental risks, social justice, diversity, and proper governance” said Woody Bradford, CEO and chair of the board, Conning. “Those who don’t keep up or ensure thorough implementation will be left behind as ESG grows in importance to all stakeholders.”
At its core, RSPE is a conservative investment, which is what insurance companies aim for. At a time when market observers are concerned about rich multiples on domestic stocks and concentration in cap-weighted benchmarks, RSPE is a relevant consideration for a broad audience of investors, institutional and otherwise.
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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.