Socially Responsible Investing With ETFs
- Sep 15, 2015
- 2 min read
71%
That's the percentage of investors interested in sustainable investing*. I think it should be 100%, but that's just one guy's opinion. Approximately $6.57 Trillion in assets is currently invested in companies with strong Environmental, Social, & Governance (ESG) attributes**. That's more than 2x the United States tax revenue from 2014!
What Is Sustainable Investing?
Sustainable investing is simple; any investing strategy designed to create profit for its shareholders while protecting the environment and improving the lives of those with whom it interacts. Sustainability can be found in corporations that are greener for the planet, commit to protecting humanity, and adhere to financially sound governing practices.
Chris McKnett, Head of ESG Investments at State Street Global Advisors offers a fantastic overview. “Sustainable investing is less complicated than you think, better performing than you believe, and more important than we can imagine.” Click the video below to learn more.
My company, Aspen Leaf Partners, has been committed to low cost, tax efficient Index Fund investing for years. Until recently, it was impossible to build a diversified portfolio focused on ESG criteria exclusively with index funds.
Now, we can use investment products like the iShares MSCI ACWI Low Carbon Target ETF in client portfolios. This fund starts with approximately 2,500 broadly diversified global stocks, then underweights or divests from companies with high fossil fuel reserves and emissions. The end result is an investment product with a 97% reduction in future carbon emissions. Oh, and the performance is legit too.
Our approach to ESG and sustainable investing is detailed in my company's Investment Philosophy. It's a short read, and in it you will learn how corporations focused on ESG criteria tend to outpeform. In fact, over 70% of CEOs ackowledge that sustainbility is the key to future growth. Those that question the validity of ESG investing have already given up 1.1% in annualized return***. Our approach even works for investors who remain skeptics; you don't have to be a believer in climate change to adopt an ESG portfolio strategy, you just have to look at the results. There's a reason why three quarters of CFAs (nerdy, institutional fund manager types) incorate ESG analysis into their stock analysis****.
ESG Investing Is Catching Interest
I'll keep submiting articles to industry publications regarding the next generation of ESG investing. Some will publish the content, others may not. Both index fund and ESG investing kind of butt heads with where sponsorship dollars may come from.
My first article, Socially Responsible Investing With ETFs, appeared this morning at ETF.com. You can read it HERE. I hope you take the time to read and share it. There are social media links both at the bottom of this blog post, as well as the ETF.com article. Please use them if you like the content.
Thank you!
* Sustainable Signals: The Individual Investor Perspective. Morgan Stanley Institute for Sustainable Investing. Feb. 2015.
** Report on US Sustainable, Responsible, and Impact Investing Trends 2014. USSIF Foundation.
*** Can ESG Add Alpha? Nagy, Kassam, Lee, June, 2015.
**** Environmental, Social and Governance (ESG) Survey, CFA Institute, June, 2015.
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