Many advisors and investors are concerned about fully implementing their values within portfolios, but there may be a more appealing way to start down the environmental, social and governance, or ESG, path through exchange traded funds.
On the upcoming webcast (available live and on demand for CE Credit), Dipping Your Toe into the ESG Waters, Abdur Nimeri, Senior Vice President and Senior Investment Strategist at FlexShares, will explore central trends in adopting ESG and key macro-economic and market drivers of ESG investing.
The growing trend for ESG investments has also helped put a relatively new segment of the ETF market in the limelight. For instance, the FlexShares STOXX US ESG Impact Index Fund (NasdaqGM: ESG) and FlexShares STOXX Global ESG Impact Index Fund (NasdaqGM: ESGG) allow retail investors to easily access institutional-level investment strategies.
The funds are based on the STOXX global ESG Impact Index, which screens companies scoring better with respect to a select set of ESG key performance indicators (KPIs), with the bottom 50% of such companies based on their ESG KPI scores excluded from the Index, as are companies that do not adhere to the UN Global compact principles, are involved in controversial weapons or are coal miners.
FlexShares outlines seven distinct approaches to ESG-related investing currently floating around in the investment community: Negative/exclusion exclude specific securities based on ESG criteria. Positive/best-in-class target positive ESG performance relative to industry peers. Impact investing aim at solving social or environmental problems. Sustainability themed investing selects assets related to sustainability in single- or multi-themed funds. Corporate engagement and shareholder action use shareholder power to influence corporate behavior. Norms-based screenings hone in on investments against minimum standards of business practices based on international norms. Lastly, ESG integration seen as a systematic and explicit inclusion by investment managers of ESG risks and opportunities into traditional financial analysis.
Related: The Battle of Acronyms: SRI Vs ESG
However, FlexShares believes that the best way to access the ESG space is to integrate ESG-related KPIs into an investment strategy.
“KPI integration improves bottoms-up security selection while removing data-provider bias,” according to FlexShares. “The methodology builds an ESG index by essentially coding at the ‘root’ level versus applying an overlay or top-down ESG strategy; it parallels the best behaviors of portfolio managers when it comes to evaluating, sorting and selecting companies for investment.”
Financial advisors who are interested in learning more about ESG investments may register for the Thursday, September 21 webcast here.