Environmental, social and governance (ESG) strategies are expected to be a growing corner of the exchange traded funds industry. For those interested in including an ESG theme into a diversified investment portfolio, 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 an institutional-level investment strategy.

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.

More and more advisers and retail investors are considering ESG strategies and ETFs.

“Until now, much of the growth in environmental, social and governance (ESG) investing has been concentrated among large institutional investors,” said FlexShares. “But the number of financial advisors considering ESG investment products is starting to grow – whether because of idealistic convictions, updated investment guidelines or risk-reduction objectives.”

What are the ESG Benefits? 

A 2015 report by Morgan Stanley found that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.”

The outperformance is attributed to better governance practices, along with diminished profit-eroding conflicts with workers, regulators and consumers. Additionally, some popular screens include the exclusion of poison-pill anti-takeover provisions, transparency about executive pay and policies that favor shareholder rights.