Investors should take a look at exchange-traded fund strategies to capture the potential benefits of environmental, social and governance investing in the current marketplace.
In the last webcast Beyond the Backlash: Why ESG Matters More Than EverMichael Andeberhan, ESG Investment Strategist at State Street Global Advisors, highlighted the growing importance and focus on ESG investing around the world as more investors become aware of the potential benefits of socially responsible investing.
Andeberhan explained that incorporating key ESG factors alongside traditional financial metrics can improve returns over the long term and help mitigate future risks. In addition to improving the quality and availability of ESG data, adoption has increased in recent years, as has the number of companies reporting on ESG metrics. Many governments are also enacting new regulations specifically addressing ESG and climate risks, and such regulations are expected to be more widely adopted around the world. In addition, the impacts and risks of climate change are becoming increasingly visible as details of ESG incidents within companies become more visible and increasingly threaten profitability.
As investors look for ways to invest in the socially responsible theme, Andeberhan highlighted five overarching investment themes including exclusion/negative screening, positive screening/best-in-class, ESG integration, theme and impact. Exclusion/negative screening follows the exclusion of specific companies, sectors or countries based on ESG factors or risks. Positive Screening/Best-in-Class includes investments in sectors, companies and countries selected for their strong ESG performance relative to broader or industry-specific peers. ESG integration involves a systematic and explicit incorporation of key ESG metrics into traditional investment analysis and decision-making processes. The thematic approach invests in specific ESG issues such as climate/carbon or gender diversity. Finally, impact investing makes targeted investments aimed at addressing specific social and/or environmental concerns.
At State Street Global Advisors, Andeberhan said they are proactive about their diversity and inclusion policies.
“To ensure businesses promote racial and ethnic diversity, equity and inclusion, we have introduced new voting policies and disclosure expectations to drive accountability and progress,” Andeberhan said.
For example, “we continue to improve our gender diversity and voting policies to hold companies accountable,” Andeberhan added, noting that 948 companies (about 60%) globally had a female director on their board as of March 2022.
Additionally, in 2022, the SSGA will take voting action against companies that fail to provide adequate disclosure in accordance with the TCFD recommendations. They will continue to engage companies on climate issues, with a focus on understanding companies’ plans and making progress toward long-term climate goals.
Looking ahead, Michael Arone, Chief Investment Strategist at State Street Global Advisors, argued that markets could potentially find potential relief for international equities as the tightening cycle matures, with a particular focus on small-cap fundamentals that come with added ESG -Stay solid analytics.
Additionally, in the fixed income space, Arone underscored the potential appeal of municipal bonds, which are relatively cheaper than other government bonds on an after-tax basis.
To help investors better access the various global market opportunities with an ESG approach, investors can turn to options like the SPDR S&P 500 ESG ETF (EFIV), SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX), SPDR MSCI USA Climate Paris Aligned ETF (NZUS), SPDR S&P SmallCap 600 ESG ETF (ESIX), SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX)and the SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG) for national and international equity market engagements with an ESG orientation.
Additionally, investors can use something like that SPDR Nuveen Municipal Bond ESG ETF (MBNE) and the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND) to access fixed income options looking for ESG principles.
Financial advisors interested in learning more about ESG investing can watch the webcast on demand here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.