Environmental, social, and governance (ESG) investing is not a fad and will likely be here to stay as its popularity only perpetuates even more global expansion.
The byproduct of this expansion is higher demand for more ESG data in the form of analytics. Through this new data, more ESG-linked indexes are being developed in order to accommodate various investment styles to suit investors' profiles.
"Index Providers are addressing investor calls for increased exposure to ESG-linked funds, specifically those centered around climate issues, as sustainability is placed further at the forefront of societal concern," says Sean Eskildsen, analyst at Burton-Taylor, which produced two reports on ESG's growing global reach. "Strong growth is likely to continue in coming years, though regulatory action and varying market conditions will test investor sentiment in the segment," Eskildsen adds.
"Driven by unabated investor interest and industry demand, financial data providers are newly focused on offering products and information that help market participants evaluate businesses' adherence to environmental, social, and governance concerns," says Adler Smith, analyst at Burton-Taylor, adding, "This demand for ESG data/analytics comes from all corners of capital markets, but is primarily concentrated with the buy-side."
One Global ESG ETF Worth Considering
To maximize this global push towards ESG investing, investors will want to take a look at the FlexShares STOXX Global ESG Impact Index Fund (ESGG). Per the fund’s description, ESGG seeks investment results that correspond generally to the price and yield performance (before fees and expenses) of the STOXX® Global ESG Select KPIs Index.
The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® Global 1800 Index, a float-adjusted market capitalization-weighted index of companies incorporated in the U.S. or in developed international markets. The fund uses the index as its starting point and then sifts through companies by weeding them out based on the following criteria:
- Companies that do not adhere to the U.N. Global Compact principles
- Companies involved in controversial weapons
- Coal miners
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