Socially responsible ETF strategies that focus on environmental, social and governance principles could help investors diversify and capture prudent sustainable practices – with companies like DWS Group leading the charge with a diverse line-up of ESG ETFs.
The New York Stock Exchange welcomed executives and guests of DWS Group for the Closing Bell on Monday, Aug. 5, 2019, in celebration of the launch of Xtrackers S&P 500 ESG ETF (NYSE Arca: SNPE). To honor the occasion, Jimmy Lee, Chief Executive Officer, The Wealth Consulting Group, helped ring the NYSE Closing Bell with DWS representatives.
ESG investing has become a large and fast-growing major market segment, according to a DWS note. Over one-quarter of assets under management globally, or over $22 trillion, are now allocated to investments with ESG factors that can materially affect a company’s performance and market value. ESG integration, or the systematic and explicit inclusion of ESG factors in financial analysis, has been steadily expanding at 17% per year.
The ESG investment theme is also more than just a feel-good gimmick. According to a meta study over 2000 academic ESG performance studies, DWS found that ESG can potentially help mitigate idiosyncratic and systematic risks. Specifically, 90% of study results reveal that prudent sustainability practices have shown a positive influence on investment performance. Around 88% of study results found that companies with robust sustainability practices demonstrate better operational performance and cash flows. Around 9 of 11 of the GICS sectors saw stocks with better ESG scores come with lower earnings volatility. Lastly, companies with high ESG ratings typically exhibit lower cost of capital.
SNPE is one way for investors to capture the opportunities offered by tilting toward the ESG theme. Xtrackers S&P 500 ESG ETF’s underlying index tries to reflect 75% of the float market capitalization of each Global Industry Classification Standard Industry Group within the S&P 500 Index, using an ESG score as the defining characteristic.
The underlying index excludes companies involved in the production or sales of tobacco, engaged in the business of controversial weapons, fall within the bottom 5% of the United Nations Global Compact score ranking, or fall within the lowest 25% of ESG scores from each GICS Industry Group. Companies are then ranked by ESG score within their GICS Industry Group.
Watch Monday’s NYSE Bell Ringing below:
For more information on ESG-related strategies, visit our socially responsible ETFs category.