ETFs

ESG Investing to Gather More Steam: ETFs to Win

The environmental, social and governance (ESG) investing category continues to remain one of the most popular arenas among investors. In fact, BlackRock’s head of iShares Americas, Armando Senra, said that the ESG investments might reach the $1-trillion category by 2030, per a CNBC article.

ESG funds saw attractive inflows already this year. About $21 billion went into the sustainable investment category in the first quarter of 2021 alone. Hence, the number has ample scope to increase further and compare favorably with the above $51-billion amount invested in ESG funds during 2020, $21.4 billion in 2019 and $5.4 billion inflows in 2018 as mentioned in a CNBC article.

Notably, the alternative energy space is expected to get stronger under the Biden administration. President Joe Biden is expected to talk about climate emergency on global platforms and ensure that the United States achieves 100% clean energy economy and net-zero emissions, at least by 2050. Moreover, he pledged to reduce the U.S. greenhouse gas emissions to half by 2030 as stated in a Yahoo Finance article.

Experts are believing that Biden’s climate agenda will likely be a “windfall for ESG investors,” per a CNBC article. Also, Biden’s $2.3-trillion infrastructure plan presented in March, containing initiatives to control climate change, can provide a huge impetus to the ESG space. The plan pledges to "spark the electric vehicle revolution" by building a network of 500,000 EV chargers by 2030, replacing 50,000 diesel transit vehicles and electrifying about 20% of the school buses among other initiatives. Notably, Mark Mathers, a certified financial planner and partner at Beacon Pointe Advisors in Boston also commented that “Biden’s influence here is going to be helpful,” as discussed in a CNBC article.

Moving on, the coronavirus pandemic impacted the investing world with market participants showing greater interest in conscious investing, thereby spurring demand for ESG funds. Not only the COVID-19 scare but other factors like protests against racism, geo-political tensions and changing climatic conditions too are responsible for the growing popularity of sustainable investing funds. Riding on this surging demand, ESG funds are witnessing record inflows this year. Notably, ESG investing showed some resilience and continues to gain investor attention amid the pandemic.

Markedly, David Bailin, chief investment officer at Citi Global Wealth, remarked that particularly, younger investors are expected to put an “enormous emphasis” on sustainable and responsible investing category in the next five to 10 years (as stated in a CNBC article).

ESG ETFs in Spotlight

ESG investing is expected to keep raising investors’ optimism. Below we discuss a few ETFs that aim to provide exposure to ESG investing:

iShares ESG Aware MSCI USA ETF ESGU

The fund seeks similar risk and return to the MSCI USA Extended ESG Focus Index while achieving more sustainable outcome. It provides exposure to higher-rated ESG companies while accessing large and mid-cap U.S. stocks. The fund charges 15 bps in fees (read:  Thematic Investing Ideas to Boost Your Portfolio Returns in Q2).

Xtrackers MSCI USA ESG Leaders Equity ETF USSG      

The fund tracks investment results that correspond generally to the performance of the MSCI USA ESG Leaders Index. Notably, the MSCI USA ESG Leaders Index provides exposure to companies with high ESG performance relative to their sector peers. The fund charges 10 bps in fees (read:  ESG ETF (USSG) Hits New 52-Week High).

Vanguard ESG U.S. Stock ETF ESGV

The fund tracks the performance of the FTSE US All Cap Choice Index comprising large, mid and small-capitalization stocks. It does not include companies operating in adult entertainment, alcohol and tobacco, weapons, fossil fuels, gambling and nuclear power industries. It also doesn’t consider companies, which do not meet the U.N. global compact principles and diversity criteria. It charges 12 bps in fees (read: 5 ETFs to Enhance Your Portfolio in 2021).

Nuveen ESG Large-Cap Growth ETF NULG

The underlying TIAA ESG USA Large-Cap Growth Index comprises large-cap equity securities and meets ESG criteria plus exhibits overall growth style characteristics based on long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate, long-term historical EPS growth trend and the long-term historical sales per share growth trend. It charges 35 bps in fees (read: 4 Factors Why ESG ETFs Are Likely to Heat Up in Q2).

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Nuveen ESG LargeCap Growth ETF (NULG): ETF Research Reports

iShares ESG Aware MSCI USA ETF (ESGU): ETF Research Reports

Vanguard ESG U.S. Stock ETF (ESGV): ETF Research Reports

Xtrackers MSCI USA ESG Leaders Equity ETF (USSG): ETF Research Reports

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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.

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