Displaying items by tag: esg

While ESG continues to face backlash on the political front, this is still a strong demand for sustainability from investors. For example, recent research from Ernst and Young (EY) found that sustainability experience at the board level in Europe has increased over the last six months as companies respond to investor demand. The latest EY Boardroom Monitor found that 32% of companies currently have board directors with professional experience or expertise in sustainability. While that figure may seem low, it’s a big jump from EY’s Boardroom Monitor in June, when only 19% of boards monitored listed sustainability expertise. The jump in experience corresponds with EY’s research that showed sustainability was a dealbreaker for investing for a majority of investors. Over fifty percent (51%) of investors said boardroom experience in sustainability has a ‘significant’ impact in terms of making a company an attractive investment. Twenty-two percent went further, saying it has a “highly significant” impact on a company’s investment case. Other findings from EY’s research revealed that sustainability experience is much more prevalent among female board members. While the current gender split in financial services boardrooms is 58% male and 42% female, 72% of board directors with experience in sustainability are female.

Finsum:According to research from Ernst and Young, sustainability experience in the board room jumped from 19% in June to 32% as companies respond to investor demand.

Last month, the Vanguard Group decided to drop out of the Net Zero Asset Managers initiative, whose members commit to making their investment portfolios emission-neutral by 2050. The decision by Vanguard emphasizes the notion that retail investors are less focused on ESG priorities than institutional investors. The fund giant said that 80% of its nearly $8 trillion in assets are in index funds, which typically attract retail investors. The rationale for the decision, according to Vanguard was that it was responding to the desire of its clients to provide "clarity" and make its independence clear. Vanguard's largest competitors, BlackRock and State Street rely more on institutional investors such as pension funds and foundations. Todd Rosenbluth, head of research at VettaFi told Reuters that “Institutional investors focus more on climate and other ESG priorities amid pressure to do so by clients, regulators and investment activists. BlackRock and State Street are appealing to an investment base that cares more about ESG." Both BlackRock and State Street have stuck with the Net Zero Asset Managers initiative. Rosenbluth also stated that “Many retail investors are also interested in matters like climate change, but prioritize them less in building retirement portfolios.” That matches a FINRA Investor Education Foundation study of retail investors last year that found only 9% of respondents held ESG investments.

Finsum:Many retail investors are interested in climate change, but prioritize them less in building portfolios, while institutional investors focus more on ESG amid pressure from clients, regulators, and activists.

If your clients are invested in Chinese companies and have a preference for ESG, it may be time for a change in their portfolios. It appears sustainability rules in western countries are at odds with what’s happening in China. While Chinese equities offer strong growth potential, their ESG ratings rank lower than western nations and most emerging markets. For instance, Sustainalytics, a sustainable rating agency owned by Morningstar, downgraded three Chinese big-name tech companies on its watchlist in October. The three stocks, Tencent, Weibo, and Baidu, were moved to the category of “non-compliant with UN principles.” In addition, Hong Kong Watch, a UK-based group that researches investment and human rights issues in China, recently said in a report that “many of the biggest asset management, state pension, and sovereign wealth funds were passively invested in companies allegedly involved in the repression of Uyghur Muslims in China’s Xinjiang region.” The report found three major stock indices provided by MSCI included at least 13 companies that “have allegedly used forced labor or have profited from China’s construction of internment camps and surveillance apparatus in Xinjiang.” Another problem is that Chinese companies are less likely to respond to queries from ESG rating agencies.

Finsum:With ESG investing continuing to gain momentum, it appears that many Chinese companies are at odds with ESG due to censorship and repression in China.

Investment advisor and banking solutions provider Save recently announced that it launched a savings product that is focused on ESG investing. The firm said in a recent press release that its "Market Savings program offers an option that provides a yield from iShares ESG Aware exchange-traded funds (ETFs) and other ETFs.” According to the press release, the ESG Market Savings portfolio aims to maximize environmental, social, and governance characteristics and exclude companies with certain practices. The release also said that since the launch of this ESG portfolio, about 10% of the people who have signed up for Market Savings have selected the Save ESG portfolio. Save Founder and CEO Michael Nelskyla said the following in the release, “Consumers are increasingly turning to ethical choices in all aspects of life including investments. We see it as our fiduciary responsibility to offer ethical investing through our Market Savings program for those consumers who seek these choices.” The Market Savings program on Save’s Savetech platform offers a yield that varies according to underlying market performance. It also noted that customer deposits are FDIC insured.

Finsum:Save announced that it launched an ESG Market Savings portfolio that aims to maximize environmental, social, and governance characteristics and exclude companies with certain practices.

While ESG has continued to come under fire from both politicians and regulators, ESG fund assets have continued to grow. In fact, sustainable fund assets grew 0.84% through November, which is better than the 1.1% decline for all funds, according to Morningstar. However, the performance of these funds has not been great; but that's not due to political or regulatory pressure. According to analysts, the reason that ESG funds have underperformed this year is that they missed out on the best performing sector this year, which was energy. ESG funds typically don’t hold stocks of oil companies such as ExxonMobil and Chevron that have performed so well this year. According to Morningstar, the average large-cap stock ESG fund has lost nearly 20% through Dec. 21st. That’s about 2.4% worse than the S&P 500 Index. The question is, will that continue into 2023? The answer depends on whether oil companies will continue to outperform. Energy strategists differ in their opinions. Morningstar energy strategist Stephen Ellis thinks it’s unlikely, since “we see the stocks as fairly valued to expensive,” while Fidelity portfolio manager Maurice Fitzmaurice wrote recently “that oil and gas demand should keep growing as effects of the Covid pandemic pass, while lost supplies from Russia prod oil prices to rise.”

Finsum:The performance of ESG funds next year will likely depend on whether oil companies will continue to outperform.