Environmental, social and governance (ESG) has become a force in the investment arena as it continues to experience exponential growth as shown in 2019 via the FTSE US All Cap Choice index, which is part of the FTSE Global Choice Index Series. The index rose 33.5% last year to yield a 31.3% return.
“The FTSE Global Choice Index Series can be an efficient way for investors to begin adding a sustainability screen to a broad investment portfolio,” said Tony Campos – director, ESG Americas, FTSE Russell. “The indexes measure the impact of a company’s products and its conduct, excluding companies that manufacture vice products or weapons and screening for conduct issues such as corruption or environmental scandals.”
More and more investors are asking for these ESG-focused products that not only achieve target returns, but also focus on topics investors care about, such as climate change or renewable energy sources.
“ESG and sustainable investment strategies are an increasing focus for many of our investors,” said Rich Powers, head of ETF product management, The Vanguard Group. “ETFs tracking rules-based, broad market indexes screened for ESG criteria can serve as core portfolio building blocks for investors seeking to integrate ESG into their long-term investment strategies.”
The news comes just as ESG is starting to make an impact in the investment arena and more interest in 2020 should follow. The challenge for these ESG funds is giving investors what they want, which is more ESG offerings, but at the same time, trying to generate a return.
Because of this unprecedented growth, ESG is now drawing the attention of the SEC just as the topic became one of the most searched financial terms in 2019, according to a 401(k) Specialist post. Now that the ESG space is gaining traction, the SEC is putting the industry under the proverbial microscope with the issuance of examination letters to various firms.
According to the 401(k) Specialist post, the examination letter asked one asset manager for a list of stocks that comprised the fund and how it determines whether an investment is deemed socially responsible. Nonetheless, that’s not stopping large institutional investors from getting in on the ESG action, such as Black Rock.
“We intend to double our offerings of ESG ETFs over the next few years (to 150), including sustainable versions of flagship index products, so that clients have more choice for how to invest their money,” said BlackRock in a statement.
BlackRock’s iShares brand supports some of the most widely held ESG ETFs, including the iShares ESG MSCI USA Leaders ETF (SUSL), iShares MSCI KLD 400 Social ETF (NYSEArca: DSI) and the iShares MSCI USA ESG Select ETF (NYSEARCA: SUSA).
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