Focus on ESG Could Be Taking a Toll on Coal

The rise of environmental, social and governance (ESG) has investors constantly asking for funds that support the initiatives of environmentally-sound practices, but it could be taking a toll on coal. In world where emissions regulations are getting more stringent, this also puts the coal industry in a bind.

“It still varies dramatically based on the investor, but pension funds and endowments who hand over capital to third party asset managers are pressing more and more for ESG standards, and it’s impacting securities prices as some funds refuse to invest outright in certain companies, with coal being one of the dirtiest sectors,” said a high yield portfolio manager in a Forbes report.

The Forbes report also addressed the movement of investment firms like Goldman Sachs scaling back investments on coal plants or mines, unless there are strategies in place to reduce emissions.

“If you’re looking at a coal name under the premise of an eventual debt refinancing at this stage, you have to think long and hard about that,” said a “buysider who’s been involved in multiple coal names and whose firm has not implemented an ESG strategy,” according to the report. His fund, he says, has nevertheless limited its coal exposure in recent months due to the growing prominence of ESG investing.

One fund that could be facing the music is the VanEck Vectors Coal ETF (NYSEArca: KOL). KOL seeks to replicate as closely as possible the price and yield performance of the MVIS® Global Coal Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index includes companies in the global coal industry that generate at least 50% of their revenues from coal operation (production, mining and cokeries), transportation of coal, production of coal mining equipment as well as from storage and trade.

ESG Exposure Via an ETF Wrapper

Investors who want ESG exposure via an ETF wrapper can take look at the FlexShares STOXX US ESG Impact Index Fund (BATS: ESG). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® USA ESG Impact Index.

The fund will invest at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of the underlying index. The underlying index is an optimized index designed to provide broad market exposure that is tilted toward U.S. companies that score better with respect to a small set of ESG characteristics and to provide the potential for attractive risk-adjusted performance relative to the STOXX® USA 900 Index, as determined by the index provider.

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