Environmental, social and governance principles are starting to gain traction in the ETF industry as more investors look to socially responsible investing to enhance portfolios and do good along the way.
“It’s nothing new. At DWS, we’ve got a 20-year history in responsible and social investing,” Luke Oliver, Head of U.S. ETF Capital Markets at DWS, said at the Charles Schwab IMPACT 2018 conference.
DWS recently launched the Xtrackers MSCI EAFE ESG Leaders Equity ETF (NYSEArca: EASG), an ETF that tracks an index designed to provide exposure to companies with high ESG-related performance relative to their sector peers. Specifically, the underlying index is based on MSCI ESG Ratings, MSCI ESG Controversies and MSCI Business Involvement Screen Research to determine index components.
EASG is currently DWS’ only listed ESG-related ETF, but they are working on the Xtrackers MSCI Emerging Markets ESG Leaders Equity ETF (NYSEArca: EMSG) and the Xtrackers MSCI ACWI ex USA ESG Leaders Equity ETF (NYSEArca: ACSG), according to a fund prospectus sheet.
Many have automatically assumed this category is only a feel good investment, but the strategy is also based on fundamentals that could help generate long-term returns. The investment style is also backed by academic studies that show companies with sustainable practices or adhere to ESG principles have generated improved returns over time while diminishing downside risks.
“I think this is one of the big misconceptions. People think that this is some kind of charitable, activist or the investing only works to make you feel good, but that is really not what underlies or underpins the strategy. Really, you’re looking at companies that are sustainable, companies that have practices that change the world we’re in, and you’ve got companies that have good governance programs,” Oliver added. “That’s just good business.”
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