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ESG Investing Could Get a Lift From Retirement Plan Focus

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Institutional investors will driver adoption and growth of environmental, social, and governance (ESG) strategies and now, some retirement plan sponsors are moving in that direction. Over the long-term, that could be a boon for ETFs, such as the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG) and its global counterpart, the FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG).

Data confirm that investors poured into ESG ETFs in the first quarter, indicating the coronavirus pandemic shined a light on the utility of funds such as ESG and ESGG.

“Scientists and environmentalists have reported a drop in daily carbon dioxide emissions as a result of the pandemic, and the connection between the pandemic and its effect on climate change has spurred plan sponsors and companies to support environmental, social and governance (ESG) investing,” reports Amanda Umpierrez for PlanSponsor.

The Move to ESG Investing

ESGG is based on the STOXX Global ESG Impact Index, which screens companies scoring better with respect to a select set of ESG key performance indicators (KPIs), with the bottom 50% of such companies based on their ESG KPI scores excluded from the Index, as are companies that do not adhere to the UN Global Compact principles, are involved in controversial weapons or are coal miners.

Data indicate more retirement plan sponsors are mulling ESG investments.

“Socially conscious investors, interested in ESG investment opportunities, had been slowly turning the tide and influencing workplace employers. A 2019 study by American Century Investments showed 90% of defined contribution (DC) plan sponsors who offered or were considering offering, ESG investments believed it would attract participants,” reports PlanSponsor.

When covering ESG investments, the environmental aspect includes attributes like climate change, natural resources, pollution, waste management, and other environmental opportunities. The social aspect incorporates human capital, product liability, stakeholder opposition, and other social opportunities. Lastly, the governance aspect covers things like corporate governance and corporate behavior. Importantly, COVID-19 is showing investors the benefits of ESG funds.

“Now, the COVID-19 crisis is altering how the global economy will move toward the future. Market downturns and the economic shutdown set off by the pandemic have ignited new corporate behaviors that can deliver positive effects to the environment, such as issuing green, social, and even COVID-19 bonds,” notes PlanSponsor.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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