If you were a skeptic before when it came to ESG (environmental, social and governance) investing, then let the money speak As of last week, ESG index funds have topped $250 billion--and they’re still marching forward with serious determination.
The pandemic has hastened the entrance of what is also known as “impact investing” into the mainstream. And it’s here to stay, even with the U.S. market representing 20% of the total $250 billion ESG stream.
That’s up from around $30 billion in 2018.
According to CNBC, citing a new Morningstar report, the total number of ESG-focused index funds has doubled just in the past three years. And along with that, the total amount of ESG or sustainable assets held by those funds has also doubled in that same time period.
Morningstar reported an astounding 534 ESG-focused index funds by the end of Q2 2020, with $250 billion in assets.
And while Europe has the clear head start, there’s tons of sustainable upside opportunity in the United States.
Why? Because sustainable or impact investing now makes financial sense, especially with ESG index now consistently outperforming the market during major downturns and also over the longer term.
According to Harvard Business School professor George Serafeim in a recent article in the Harvard Business Review, we’ve now reached a point where investors are “becoming sophisticated enough to tell the difference between greenwashing and value creation”.
Now, it’s all about identifying emerging ESG industry drivers before the competition does.
But the bottom line is the bottom line, and in response to that, Serafeim writes: “The most fundamental reason to try to raise your company’s ESG performance is that all human beings—in and out of corporate settings—have an obligation to behave in prosocial ways. But apart from the moral case, there are very real payoffs for focusing on ESG issues.”
BlackRock, the new king of Wall Street with its ESG-driven asset focus, also this week unveiled a new suite of three ESG multi-asset ETFs, promising investors a “cost-efficient, transparent and sustainable way” to invest in this uncertain market. The BlackRock ESG Multi-Asset Conservative Portfolio UCITS ETF fund, will have 80% in bonds, 20% in stocks and a 2%-5% volatility target. There are also moderate and aggressive portfolio versions.
According to BlackRock, the new portfolios are specifically designed to carry a higher ESG score than the norm.
"We are doubling down on the characteristics that we know attract people to ETFs, to achieve broad exposure to the markets in an ESG and risk conscious way,” Joe Parkin, head of banks and digital channels for BlackRock in the UK, said in a statement.
At the same time, the intensifying ESG craze has even led to the creation of new AI-driven ESG indices designed to provide investors with the kind of diversified exposure to equities with highly desirable ESG elements.
San Francisco-based Truevalue Lab is teaming up with Germany’s Solactive to create the SolactiveTruvalue ESG Index Series. And it will have a United States benchmark to start off with.
“Truvalue Labs’ technology-driven approach generates current, consistent and relevant ESG signals. We’ve experienced rapid adoption of our real-time ESG information by leading asset owners and managers,” Thomas Kuh, head of index at Truvalue Labs, said in a press release. “We are very pleased to work with Solactive, the leading independent index provider, to offer investors transparent and cost-efficient exposure to Truvalue’s unique ESG factors through these indices.”
By Michael Kern for Safehaven.com
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