The coronavirus pandemic didn’t do any favors for retirement accounts as markets fell during a panic sell-off, which saw many 410(k) accounts lose their values. However, as markets begin to stabilize again and investor confidence returns, environmental, social and governance (ESG) investing can help shore up retirement accounts moving forward.
“Against this backdrop, and as climate warnings become direr, investors are becoming increasingly interested in climate change-related investments,” wrote Jarvin Gabusch, Co-Founder and Chief Investment Officer of Green Alpha Advisors. “Indeed, what may have started out as a bit of a Wall Street niche has become a much broader and more critical investment strategy for a wide range of investors, most notably, it seems, millennial investors looking to build a sustainable nest egg. Regardless of age, the pursuit of impact investing in a 401k plan has to do more than just “feel” rewarding—it has to make financial sense.”
“It’s reasonable to think the positive prospects for carefully selected innovation and technology investments line up particularly well with the longer-time horizon of many 401k plans,” Gabusch added. “The good news for 401k plan participants in today’s market is they don’t have to choose between strategies that align with their investing goals and funds that actually make money.”
The preference for ESG isn’t just relegated to the initiatives that investors support themselves, but it could also be tied to their performance as of late. During the first quarter, ESG funds were stellar performers even amid the coronavirus pandemic.
“During the first quarter, the returns of sustainable equity funds were clustered in the top halves of their respective categories, and more sustainable funds’ returns ranked in their category’s best quartile than in any other quartile,” Jon Hale wrote in Morningstar. “The returns of 70% of sustainable equity funds ranked in the top halves of their categories and 44% ranked in their category’s best quartile. By contrast, only 11% of sustainable equity funds finished in their category’s worst quartile. That’s 4 times more sustainable funds finishing in the best quartile than in the worst quartile of their categories.”
ESG ETF Exposure
Investors who want ESG exposure via an ETF wrapper can take 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.
For more market trends, visit ETF Trends.