As the landscape of environmental, social and governance (ESG) funds grows and evolves, it’s clear that investors are embracing ESG, but they’re demanding more education and clarity.
One thing that’s becoming abundantly clear is that they want to avoid greenwashing. In simple terms, greenwashing is the act of applying hyperbole to a fund’s ESG credentials, though individual companies can be guilty of the offense, too.
An unfortunate result of greenwashing is that some investors may end up allocating capital to funds that aren’t as green as they purport to be. The IQ Candriam ESG US Equity ETF (IQSU) is an ideal way to avoid greenwashing.
“The efforts to reassure investors include stressing that it is business as usual and that sustainable approaches are a valuable cornerstone of long-term investing,” wrote Morningstar analyst Leslie Norton. “Because much of the contention from sustainable-investment critics rests on the confusion of terminology, the effort centers on identifying and clarifying greenwashing as well as explaining the wide array of approaches that sustainable investing encompasses.”
IQSU, which turns three years old in December, follows the IQ Candriam ESG US Equity Index and holds 355 stocks. Index provider CANDRIAM, “an award-winning pioneer in sustainable investing,” develops the criteria for entry into the index and IQSU. That bespoke approach is relevant to investors because, among the largest index providers, there’s little to no uniformity regarding exactly what ESG is.
“One criticism has centered on the array of sustainability ratings providers, such as Morningstar Sustainalytics or MSCI. Many sustainability ratings often don’t agree with each other,” added Norton.
Based on Morningstar research, IQSU checks plenty of ESG boxes as the fund sports a corporate sustainability of 100%, and its carbon risk and fossil fuel investment scores are low. Like golf, lower scores are better in this case.
IQSU is underweight energy and utilities stocks relative to broader equity benchmarks — a trait that adds to the fund’s ESG credentials.
Additionally, 60% of IQSU’s holdings are also members of the S&P 500 ESG Index, and the overlap by weight between the ETF and that index is 77%, according to ETF Research Center data. IQSU also sports an annual expense ratio of just 0.09%, or $9 on a $10,000 investment, making it one of the most cost-effective funds in the large-cap ESG category.
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