Tough times can reveal a lot about a person. The same is true of corporate reaction to crises and investors are getting a real-time taste for how companies are dealing with the COVID-19 pandemic. That’s also shedding light on ETFs, such as the Global X Conscious Companies ETF (NasdaqGM: KRMA).
KRMA, which turns four years old in July, tries to reflect the performance of the Concinnity Conscious Companies Index, which tracks companies that achieve financial performance in a sustainable and responsible manner and exhibit positive Environmental, Social and Corporate Governance (ESG) characteristics.
KRMA is far from the typical ESG ETF that excludes sin stocks, gun manufacturers and gambling companies, among others. Rather, KRMA’s methodology focuses on stakeholders, such as Customers, Suppliers, Stock & Debt Holders, Local Communities, and notably, Employees, according to Global X.
“Amid the ensuing shutdown of major segments of the global economy, companies find themselves on a substantially weaker footing,” said Global X analyst Andrew Little in a recent note. “They face difficult business decisions around finances, operations, and personnel. Many companies make these decisions with grace, working within their economic constraints to continue to support key stakeholders. Others, that perhaps mere months ago championed stakeholder interests, may now approach decision making with a short-term, profit-driven mentality.”
Good KRMA Amid the Coronavirus
KRMA’s strategy draws on dozens of sources to identify companies that have demonstrated a long term focus on creating positive outcomes for five stakeholder groups, including employees, customers, communities, suppliers, and stock and debt holders, according to Global X.
“Sustainable investing is an approach that seeks to identify companies that demonstrate a conscious commitment to each of their key stakeholders: employees, customers, suppliers, investors, and local communities,” notes Little. “This means that at both market highs and lows, their policies are of the same flavor. While no business is perfect and economic realities can strain budgets and shift priorities, sustainable companies will continue to uphold these ideals to the best of their abilities.”
ETFs and other strategies that revolve around Economic, Social, and Governance, or ESG, principles have been quickly gaining traction as investors and advisors incorporate the qualitative benefits of ESG investments into their portfolios.
However, some may question the up-and-coming theme as either a passing fad or a sustainable long-term strategy. So far, the ESG theme has outperformed in recent years.
“The crisis we face presents a real-time case study for sustainable investing – examining how companies respond to the crisis, how they prioritize difficult decisions, and what the long-term impact of such decisions may be,” writes Little.
For more on thematic ETFs, please visit our Thematic Investing Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.