According to a State Street Global Advisors (SSGA) survey, 46% of investors link environmental, social and governance (ESG) to fiduciary responsibility. According to Rakhi Kumar, head of ESG investments and asset stewardship at SSGA, this perception of ESG is step forward, but also comes with challenges.
“We’ve seen how ESG started from an SRI perspective,” said Kumar. “Now it’s going mainstream because it’s not just a values aspect – there is a value driver. It’s clear there is a financial advantage.”
The growth of ESG funds is not relegated to simply growing in size, but the actual definition is expanding as well. While climate and sustainability still dominate topically, factors like health and wellbeing benchmarks have been formally added to the GRESB Real Estate Assessment (the ESG benchmark used by the real estate industry worldwide).
“ESG means different things to different people,” she explains. “This is a very fast-moving area, and what is challenging is that we don’t have the basics established. We are building on a soft foundation. With ESG, we are often running before we can walk. We need to establish a foundation and a common understanding. Right now, making investments ESG-aware is important and it is going to become more so. Everybody is going to do it differently and it’s going to feel like the Wild West if we don’t get a common framework.”
How can ETF investors capitalize on the ESG space as it experiences expansion? One fund to look at 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.
Top-Performing ESG Companies
For investors interested in ESG initiatives, sometimes they have to strike a balance between performance and the company’s level of involvement when it comes to ESG issues. However, data used from indexing firm MSCI helped to extrapolate 50 of the top-performing companies that are also high on ESG ratings, which was published in Investor’s Business Daily.
“Among companies with ESG ratings of AAA or AA from MSCI ESG Research as of Sept. 11, 2019, these 50 companies had the highest IBD Composite Ratings, reflecting broad strength in fundamental and technical areas linked to price performance,” wrote Investor’s Business Daily. “Nearly all have a Composite Rating of 80 or higher, putting them in the top 20% of stocks.”
Here’s a sampling of the top 10 listed companies:
| Rank | Company | Industry | ESG Rating |
| 1 | Edwards Lifesciences | Medical Products | AA |
| 2 | Equinix | Finance-Property REIT | AA |
| 3 | Prologis | Finance-Property REIT | AA |
| 4 | Emcor Group | Building-Maintenance & Services | AA |
| 5 | Cadence Design Systems | Computer Software-Design | AA |
| 6 | National Research | Commercial Services-Health Care | AA |
| 7 | NextEra Energy | Utility-Electric Power | AAA |
| 8 | Microsoft | Computer Software-Desktop | AAA |
| 9 | Hasbro | Leisure-Toys/Games/Hobby | AA |
| 10 | Owens Corning | Building-Construction Products/Misc. | AA |
Click here for the full, expansive list.
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