ESG Could Get Major Lift From Climate Conference

There is a huge focus by investors on reducing carbon emissions, and mounting pressure by investors along with shareholders pushing for better environmental practices have many industries beginning to buckle down on changes. ESG investing has grown, and while in the U.S. there are no standard federal regulations within the space, increasingly more people are looking to include ESG considerations in their investments.

COP26 could help pave the way for major changes as countries will be assessing both current and new goals going forward and committing financially to bringing about changes. The private sector as of now is expected to bear the brunt of the financing for climate change by funding 70% of the changes, according to Financial Times; estimates put the total number northward of $20 trillion by 2050.

Companies are increasingly realizing that transition is costly, but the long-term costs of not aligning with sustainability practices would be far greater as a warming world would have a variety of impacts on production. What’s more, the ire of investors could greatly affect financials.

ESG funds are already proving to be profitable; a MorningStar report found that sustainable equity funds outperformed their traditional fund counterparts by large margins in 2020, and inflows into ESG-aligned funds continue to grow at a rapid pace.

The science is finding that transitions and cutbacks aren’t happening fast enough, and that more stringent practices and changes may be needed. With the potential of governments pledging to increase financing into ESG-aligned practices at the upcoming conference, the entire sustainability arena stands to profit. Updated guidelines and goals would bring about greater sustainability practices by companies as well as help to push green technologies further, and ESG funds are positioned to capture the growth.

Putnam believes in sustainability and holds ESG practices as a core aspect of its investment approach. Its ESG-focused active sustainability managers are a fundamental part of its work to align shareholder ESG values with investment practices by engaging directly with the companies invested in on their ESG fundamentals and practices.

The Putnam Sustainable Leaders ETF (PLDR B) invests in companies whose focus on ESG issues goes well beyond just basic compliance and for whom ESG is an integral part of their long-term success. These companies have transparent goals and provide consistent, measurable progress updates.

As a semi-transparent fund using the Fidelity model, PLDR does not disclose its current holdings on a daily basis. Instead, it publishes a tracking basket of previously disclosed holdings, liquid ETFs that mirror the portfolio’s investment strategy, and cash and cash equivalents. The tracking portfolio is designed to closely track the actual fund portfolio’s overall performance, and actual portfolio reports are released monthly.

The fund was heavily allocated to information technology stocks (32.47%), followed by healthcare at 16.55% and consumer discretionary at 14.94%.

PLDR has an expense ratio of 0.59% and has 61 holdings as of the end of September.

Meanwhile, the Putnam Sustainable Future ETF (PFUT C) invests in companies seeking to provide solutions to future sustainability challenges. It is a forward-looking approach, as these companies are helping to develop ESG practices and solve problems related to sustainability.

PFUT focuses on impact companies as identified by its sustainability rating system and on investing in companies driving economic development, as Putnam believes that strong sustainability practices equate to strong financial growth.

PFUT’s top sector allocations as of end of September were 34.26% in healthcare stocks, 28.23% in information technology, and 9.45% to consumer discretionary.

The ETF has an expense ratio of 0.64% and has 72 holdings as of the end of September.

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