Environmental, social and governance (ESG) funds are beginning to see new issues arise in prominence and this could affect how said funds choose which topics come into the forefront, according to a recent State Street Global Advisors Stewardship Report.
“In 2018, we observed that social issues such as gender diversity, pay equality, wage strategies, sexual harassment in the workplace and worker retraining are raising in prominence as emerging ESG issues facing companies,” noted Rick LacailleGlobal, Chief Investment Officer at State Street Global Advisors. “Overseeing and mitigating these risks are the next frontier of challenges facing boards.”
“As our portfolio companies face new challenges, strong stewardship is essential,” he added.
Based on a survey of subscribers to Creditflux, an Acuris company, the common notion that investors primarily seek funds for performance didn’t apply to environmental, social and governance (ESG) themed investing. According to 95 survey respondents, only 13 said performance was the main driver.
According to 95 survey respondents, 35 said the primary reason ESG strategies are starting to gain traction in the capital markets is because of demand from institutional investors. In addition, about 25 percent of respondents said their organization was beginning to adopt ESG strategies to enhance their brand.
“If you have no ESG data and start with MSCI, the question is: are the types of key issues they are scoring sensible?” says Bhupinder Bahra, co-head of the quantitative research group, global fixed income, currency and commodities at JPMorgan Asset Management. “You have to look at whether the scores coming out have information content and whether they can be used to outperform benchmarks. Would you wholly rely on them? No, you wouldn’t.”
A Top-Performing ESG ETF
However, one fund that is performing well is 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.
Based on the latest Yahoo Finance performance numbers, ESG is up 20.22%.