For the time being, it appears the politicians who pushed anti-environmental, social, and governance views over the past several years have moved on. That could be a plus for ESG as an investing style.
To be sure, the current environment isn’t entirely sanguine for ETFs like the Invesco ESG Nasdaq 100 ETF (QQMG ) and the Invesco ESG Nasdaq Next Gen 100 ETF (QQJG ). Like their traditional peers, QQMG and QQJG hold stocks. That asset class has been turbulent this year. But on the upside, political opposition appears to be waning.
Even with that positive factor in mind, ESG investing, despite not being young, still needs to experience some myth-busting. If advisors and the asset management can dispel some of the preconceived notions investors hold about ESG, that could usher an era of long-term growth ETFs like QQJG and QQMG.
Some ESG Myths Linger
One of the biggest myths affecting ESG investing is the notion that it can lead to lower returns. QQJG and QQMG have proven that’s not necessarily true. And longer-ranging data confirmed as much. In fact, there can be tangible benefits from adopting an environmental, social, and governance approach.
“Extensive data, corporate disclosure and regulatory reports give investors new insights into how well companies are managing environmental, social and governance (ESG) concerns,” noted Sarah Sung of J.P. Morgan Wealth Management. “When done right, focusing on key ESG issues can potentially lower investment risk. ESG factors such as human capital management and land use could have significant effects – both positive and negative – on a company’s business model.”
Another myth about ESG that needs debunking is that the style is entirely about the “E” or climate-related issues. The indexes followed by QQJG and QQMG go well beyond environmental issues, employing social and governance standards as well.
“Climate change is a focus for many sustainable investors. However, social and governance issues – the S and G in ESG – are top of mind as well. Arguably, every investment should focus on the [G. Sound] governance practices are critical to the long-term success of businesses. And social issues like employee [well-being] are increasingly more important to investors,” added Sung.
Another reason some investors have stayed away from ESG funds is the belief that they cost more. That’s not entirely true.
“Some sustainable mutual funds and exchange traded funds (ETFs) may have higher expense ratios compared to their non-sustainable counterparts,” said Sung. “This can be due to the additional effort required to evaluate companies based on [environmental, social, and governance] criteria. However, the difference in fees is not always significant, and many sustainable funds are cost-competitive.”
QQMG carries an annual fee of 0.20%, the same as the Invesco QQQ Trust (QQQ ).
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