Environmental, social and governnance (ESG) funds is beginning to rise in prominence, especially when it comes to European investors and fixed income funds, based on a Morningstar report. However, there are a number of exchange-traded funds (ETFs) that contain sustainable impact solutions that investors can consider in today’s market landscape.
According to the report, “over the past three years ended June 2019, European investors poured $34 billion into sustainable fixed income funds. Roughly three fourths of these strategies were domiciled in Europe, which accounted for two-thirds of the assets, with U.S.-domiciled funds accounting 13% of this universe but close to one-third of the assets. “
As more firms begin to add an environmental, social and governance (ESG) element to their products, it’s necessary to exercise due diligence. This goes for both new products and adding an ESG component to existing products.
Based on a survey of subscribers to Creditflux, an Acuris company, the common notion that investors primarily seek funds for performance didn’t apply to environmental, social and governance (ESG) themed investing. According to 95 survey respondents, only 13 said performance was the main driver.
According to 95 survey respondents, 35 said the primary reason ESG strategies are starting to gain traction in the capital markets is because of demand from institutional investors. In addition, about 25 percent of respondents said their organization was beginning to adopt ESG strategies to enhance their brand.
One ETF to consider is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The expense ratio for USSG is 0.10%, which is well below the average cost of 0.39% for ESG funds, making it ideal for investors who are also seeking a low-cost solution to add ESG to their portfolios.
While ESG ETFs are still vying for market share in the ETF space, it appears to be progressing with the advent of new products meeting demand. In fact, sustainability is one of DWS’s four core values, not only from an investment perspective but also as a financial market participant.
USSG seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI USA ESG Leaders Index. In order for companies to be included in the fund, the methodology includes a comprehensive screener that filters out alcohol, weapons, gambling, and other controversial products or activities.
|Symbol||ETF Name||Sustainable Impact Solutions (%)|
|SDG||iShares MSCI Global Impact ETF||75.75%|
|ICLN||iShares Global Clean Energy ETF||71.69%|
|ACES||ALPS Clean Energy ETF||65.42%|
|TAN||Invesco Solar ETF||62.06%|
|KGRN||KraneShares MSCI China Environment ETF||55.51%|
|SMOG||VanEck Vectors Low Carbon Energy ETF||48.90%|
|FAN||First Trust ISE Global Wind Energy Index Fund||45.76%|
|QCLN||First Trust NASDAQ Clean Edge Green Energy Index Fund||42.52%|
|PBD||Invesco Global Clean Energy ETF||41.03%|
|BBH||VanEck Vectors Biotech ETF||39.22%|
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