While the economic impact of the pandemic is certainly negative, there have been positive outcomes in environmental, social and governance (ESG). Scientific data shows that emissions are dropping as a result of the pandemic, which is opening the arms of plan sponsors and companies when it comes to embracing ESG.
“The pandemic is really going to emphasize the rationale and need for people to look at ESG investments in an integrated and fundamental way,” said Matt Seymour, chief executive officer at RiskFirst.
According to a Plan Sponsor article, “plan participants have been increasingly interested in sustainable investing in recent years, adds Ed Farrington, head of retirement at Natixis. Socially conscious investors, interested in ESG investment opportunities, had been slowly turning the tide and influencing workplace employers. A 2019 study by American Century Investments showed 90% of defined contribution (DC) plan sponsors who offered or were considering offering, ESG investments believed it would attract participants.”
“Participants have instinctively understood that these issues will show up in the price of their securities over time,” Farrington adds. “We have plenty of evidence now suggesting that responsible and sustainable investments belong inside a workplace plan.”
On the other hand, the retirement space could use some coaxing when it comes to ESG. In particular, the need for returns outweighs social responsibility.
“There’s this notion that investing sustainably comes at a cost, where you’re putting your ethics above your financial needs, but that’s not the case at all,” said James Rich, a senior portfolio manager on the Sustainable Fixed Income Strategy team at Aegon Asset Management. “Responsible investing is necessary because the economy is shifting.”
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 ETF investors looking for ESG exposure within the fixed income asset class, they can look to the iShares ESG U.S. Aggregate Bond ETF (NYSEArca: EAGG). EAGG seeks to track the investment results of the Bloomberg Barclays MSCI US Aggregate ESG Focus Index, which has been developed by Bloomberg Barclays Capital Inc. with environmental, social and governance (“ESG”) rating inputs from MSCI ESG Research LLC pursuant to an agreement between MSCI ESG Research and Bloomberg Index Services Limited or an affiliate.
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