It’s no doubt that environmental, social and governance (ESG) investing has taken off in a big way even before and during the Covid-19 pandemic. However, in order to maintain due diligence in the space, more steps need to be taken, and that’s exactly what Denmark is doing by increasing transparency.
“The world’s least corrupt country plans to bring some clarity to the opaque universe of ethical investing,” a Bloomberg article noted. “Denmark, which topped Transparency International’s latest ranking, wants to win over investors with something it says other sovereign ESG issuers don’t always offer: a real price.”
“Some issuers say they’re borrowing more cheaply with green bonds than regular ones, while investors say they’re not paying more,” Thorsten Meyer Larsen, head of monetary policy operations and government debt at Denmark’s central bank, said in an interview. “Both can’t be true.”
Of course, with popularity comes grifters who try and pass themselves off as ESG just to make a quick buck. To combat this, the European Union addressed transparency by introducing an ESG taxonomy.
Will Denmark’s approach be embraced?
“The challenge is that when I invest in a government bond, it’s sold at a price of 100 and it has a coupon,” said Poul Kobberup, chief investment officer at Danske Bank’s pension unit, Danica. “When I buy a certificate, I can’t calculate a value.”
In the meantime, investors can get exposure to ESG via exchange-traded funds (ETFs). Whether its bonds or equities, certain ETFs can offer investors the exposure they desire.
Investors who want ESG exposure via an ETF wrapper can take a look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.
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