A few Realities of ESG investing, to date

Globally, new ESG funds are being launched on daily basis.   The number of ESG (environmental, social and governance) mutual funds increased by 15% annually during the past several years. Currently, there are hundreds of ESG ETFs for investors to choose from. However, investing in ESG ETFs is not as easy as it sounds. These funds can be highly complicated to understand. To date, there have been three major problems with ESG ETFs.

First, many ESG investment strategies lack transparency about their specific criteria to assess companies for inclusion or exclusion from the fund.   Some funds include all stocks that meet certain liquidity requirements while others screen out only those with poor environmental track records.   Without clear methodology on how ESG events affect a company’s scorecard, it is hard to know how their investments are made.

Second, ESG ETFs can be expensive as they require active management, unlike other low-cost index funds that passively track the performance of a sector or market.   Moreover, many ESG ETFs have even higher expenses than actively managed fund with similar mandates.

Lastly, ESG ETFs use inconsistent performance measurement metrics. Some track a fund’s overall impact on society while others measure it based on the correlation to a specific index benchmark.   Although there is no single standard for ESG performance measurement, consistency in reporting can help investors select better performing funds.

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Debate continues about how to combat what even policymakers are now beginning to acknowledge is a global climate crisis. It probably shouldn’t come as a surprise, therefore, that ever-greater numbers of investors are looking to funds that take account of ESG factors. According to fund network Calastone, UK-based equity funds had record inflows totalling £6.2bn in the second quarter of this year, with funds focused on ESG issues accounting for 50 per cent of this.

Looking at age demographics, ESG-based investments are highly regarded across all age groups. Around three in four (77 per cent) of 18 to 55-year-olds say ESG factors (Why Green Investing is Important) play an important role in their investment decision.

This only falls slightly among those aged above 55, with 71 per cent saying the same. As the much-discussed intergenerational wealth transfer is now taking place, this is another compelling reason to engage.

As it has never been more important for our industry to get to grips with this new paradigm, Pimfa has launched an ESG Academy for wealth managers, in partnership with MSCI, Fidelity International and Farrer & Co.

Globally, new sustainable funds are being launched on an almost daily basis in order to meet what can only be described as a significant and sustained increase in demand from investors.

Research forecasts that the ESG-based investment market is set to double in 2021, suggesting ESG ratings are now a major factor for investors when making decisions about their portfolio.

Calastone is the largest global funds network, connecting the world’s leading financial organisations.. Calastone is headquartered in London and has offices in Luxembourg, Hong Kong, Taipei, Singapore, New York, Milan and Sydney.

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You may also want to read What are ESG Certifications?

ESG: The New Way of Doing Business in Ottawa, ON

Business and organizational sustainability is a complex issue in Ottawa, with many stakeholders and perspectives. It’s also an area where the stakes are high – if we don’t get it right, there will be dire consequences for our communities and the planet.

The good news is that more investors are taking notice of ESG issues when they invest in Ottawa companies and organizations. In fact, over the past decade institutional investors (Factor Style Investing) have been increasingly incorporating Environmental, Social and Governance factors into their investment decisions. And soon it will be impossible to win any RFP’s without it.

We want everyone (not just big institutions in Ottawa) to be able to incorporate ESG-related risk into their actions because Companies that don’t adapt to these changes will not survive. This change has many companies in Ottawa scrambling to figure out how they can stay competitive and be profitable while also contributing to a better future.

ESG The Report is one solution that helps businesses in Ottawa find their niche in this new landscape by providing information on risks and opportunities related to environmental, social and governance factors affecting them today. Our report offers insights into what investors are looking for from companies in Ottawa and around the globe.

ESG Frameworks provide investors with insight into how companies are performing in terms of corporate governance, social issues, labour standards and environmental impact. Ask about our ESG Frameworks package to help you get started on making your company, department or organization diverse, equitable and inclusive for all stakeholders.