It could be a crucial year for environmental, social and governance investments.
Securities and Exchange Commission chairman Gary Gensler turned to ESG in a recent statement, saying he asked employees to examine a number of climate and workplace metrics to understand which ones are most important to investors .
The move could narrow the scope of the red-hot ESG trading as Gensler’s staff investigate how certain exchange-traded funds market themselves as ESG and what data backs those claims.
Arne Noack, head of the DWS Group for systematic investment solutions for North and South America, told CNBC’s “ETF Edge” this week that investors should benefit from the focus on the topic.
“There’s not that much consensus on ESG,” Noack said. “However, this heightened control and awareness will lead to an ever better understanding of investors and that is very good in our view.”
DWS operates two popular ESG funds, the Xtrackers S&P 500 ESG ETF (SNPE) and the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), both of which hit record highs on Friday.
In contrast to narrow thematic funds that look for companies with the lowest CO2 exposure or the most effective governance framework, the SNPE and USSG pursue an “approximately sector-neutral approach, but with a significant improvement in the ecological, social and governance-related profile”, said Noack.
That is why he does not mind the criticism that funds like him look strikingly similar to quality-oriented ETFs that do not take ESG into account.
“The whole idea behind these funds is to have an investment and risk / return profile that is extremely similar to the non-ESG benchmark for each segment,” he said.
“The intent of these portfolios is to give investors something that they can use as a replacement for an S&P 500 ETF, for example, but improve the ESG profile and not have to change the investment process, but can do so as a plug-in -and -play solution type. “
After a successful proxy battle with oil and gas giant Exxon Mobil, the CEO of Engine No. 1 Jennifer Grancio found a way to promote ESG values without setting official guidelines.
“What we’re trying to do at Engine No. 1 is to take the ball up a bit and invest in these companies to transform them and steer them in the right direction,” she said.
The new Transform 500 ETF (VOTE) from Engine No. 1 aims to leverage activist investment to do just that for the largest companies in the market, Grancio said.
“When you own these stocks we can go very active and active in helping these companies transform over time,” she said. “But … transforming companies and industries to account for the impact, it’s a long game. It’s not something that should be judged by quarterly performance.”
VOTE is up 2% since it was launched on June 23.
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