ESG Investors Are Looking for Bulletproof Companies During a Crisis

Amid the coronavirus pandemic, investors have to be thinking now that their portfolios should be fortified like a high-security compound. That sentiment flows over into any environmental, social and governance (ESG) investments they might have–the ability to be bulletproof during a black swan-type crisis.

More than ever, ESG investors want to not only allocate capital into companies that fit their ESG narratives but to also ensure that these companies can withstand a crisis–COVID-19 or whatever may come in the future.

“These actions will inform the company’s reputation as an employer and [of]its brand value for many years to come,” said John Streuer, CEO of Calvert Research & Management, the responsible investing unit of Eaton Vance (EV).

“Every investor I talk to, every company I talk to, [shows]that what we easily refer to as the ‘S’ [in ESG]is going to become a lot more prominent,” says Martin Whittaker, CEO of JUST Capital.

Furthermore, a Barron’s article noted that these crisis-proof companies “will see greater loyalty from their staff and be more able to attract new recruits after the crisis. Conversely, staff may leave employers that they felt abandoned them in the crisis,” Katherine Davidson and Scott McLennan, fund managers at Schroders. “Every employee is also a consumer, so we could also see market share shift to companies that are deemed to have ‘done their bit’ during the crisis.”

The next stop is where to look for bulletproof companies? One way is via exchange-traded funds (ETFs) that focus on ESG initiatives–one popular theme is the environment.

Investors looking for exposure to some environmentally-sound ETFs can take a look at the following:

  1. iShares Global Clean Energy ETF (ICLN): seeks to track the S&P Global Clean Energy IndexTM. The index is designed to track the performance of approximately 30 clean energy-related companies.
  2. ALPS Clean Energy ETF (ACES): seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index, the CIBC Atlas Clean Energy Index. The underlying index utilizes a rules-based methodology developed by CIBC National Trust Company, which is designed to provide exposure to a diverse set of U.S. and Canadian companies involved in the clean energy sector including renewables and clean technology. The fund is non-diversified.
  3. KraneShares MSCI China Environment Index ETF (KGRN): seeks to provide investment results that correspond to the price and yield performance of MSCI China IMI Environment 10/40 Index. The underlying index is a modified, free float-adjusted market capitalization weighted index designed to track the equity market performance of Chinese companies that derive at least a majority of their revenues from environmentally beneficial products and services, as determined by MSCI Inc.
  4. Invesco Solar ETF (TAN): seeks to track the investment results (before fees and expenses) of the MAC Global Solar Energy Index (the “underlying index”). The underlying index is designed to provide exposure to companies listed on exchanges in developed markets that derive a significant amount of their revenues from the following business segments of the solar industry: solar power equipment producers including ancillary or enabling products; etc.
  5. VanEck Vectors Low Carbon Energy ETF (SMOG): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Ardour Global IndexSM (Extra Liquid). “Low carbon energy companies” refers to companies primarily engaged in alternative energy, including renewable energy, alternative fuels and related enabling technologies (such as advanced batteries).

For something more broad-based, check out 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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