ESG has been one of the fastest-growing stories of 2021 and has taken over every other headline with it. However, things could be shifting in 2022 for ESG, and fund leaders see things shifting for ESG in 2022. The first big area of change will be talent and analysts more catered to addressing and differentiating ESG content. Investors will also face greater scrutiny from compliance officials and regulators, and language will be more cautious moving forwarded. Finally, investors themselves will definitely demand more than just a green label, but rather specifics of how companies are meeting and leading the way in ESG.
FINSUM: If 2021 was the year of explosion in ESG and impact investing, 2022 will be marked by how regulators tightened the reigns on this explosive industry.
Investors are doubling down efforts to carry out specific reviews of companies ESG compliance, as a new survey found that 72% carry out reviews compared to a meager 32% a couple of years ago. Some stocks are standing out from the crowd as good ESG investments moving forward. Microsoft stands out by their detailed yearly reports that will stand up to scrutiny and their pledges to reduce their carbon footprint seem very plausible. The next big stock is Nvidia which has one of the highest ESG ratings in the chip manufacturing industry and GPU and other chip demand will only grow moving forward. Dividend darling Coca-Cola should also be on investor’s radar as it has a long positive history of supporting sustainable initiatives. Rounding out the best picks is American Express which has an AA rating on ESG efforts putting it in the industry's 93 percentile.
FINSUM: Stock pickers should look out for consistent ESG benchmarks as this will likely lead to outperformance moving forward.
The environmental, social, and governance investment trend continues on a full head of steam as Goldman Sachs and BNY Mellon both launched a series of new ETFs aligning with different ESG objectives. Goldman launches a Large Cap equity ETF which tracks companies aligned with the new Paris Climate Agreement. Meanwhile BNY Mellon drops three new active ESG ETFs: the first will invest in over 80% sustainable U.S. equity, the second geared towards global markets, and the final will target emerging markets. These are just the latest as both Ark and JPMorgan created two new ESG ETFs as well in the last week. Some of the newer ETFs are following in the Euro area trend of specific disinvestment from companies reliant on C02.
FINSUM: The best part of all the new ESG focused products is the way they can be added that complement an existing portfolio: lacking large cap, pick up an ESG focused large cap ETF.
There is a growing sentiment to regulate the technology sector, and that push isn’t isolated to just the U.S., the rest of Europe is planning on changing regulations as well. However, despite this potential crackdown on the fastest growing sector for over two decades, Morgan Stanley remains bullish on many digital advertising companies like Alphabet, Meta Platforms, Snap, and Pinterest. While Morgan Stanley says there is a bear case, the base case is quite positive for tech companies and the odds of extremely tight regulation cracking down are long. The worst case scenario would be if the U.S. adopted some Euro area approaches to regulation, and whistleblowers would become commonplace in tech.
FINSUM: The moderate regulation scenario is already priced into tech stocks in the U.S. so unless Congress fully revamps its regulation tech stock looks to be bullish.
With 2021 almost coming to a close it's worth looking back at the biggest ESG funds of the last year, and three have stood out in a very saturated market. Goldman’s Future Planet Equity ETF is an active fund that addresses environmental problems and has raked in $107m since its launch in mid-July. Invesco’s MSCI Sustainable Future ETF focuses on corporations utilizing natural resources more efficiently and has outperformed the previous Goldman’s Future Planet fund by 4.7% since July. Finally, the Humankind U.S. Stock ETF is an ESG focused fund that is weighted by proprietary data and varies greatly from the traditional cap-weighted ETF. HKND has raised over $106 million since its launch in February.
FINSUM: These are stand out performers in a highly saturated market, equity focused ETFs are the route to take as far as ESGs.
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