Uniformity is among the items on the wish list of advisors and investors prioritizing environmental, social, and governance (ESG) strategies. As in uniformity of ESG ratings and scoring.
Some market observers are hoping for that uniformity to arrive on a global basis. That makes sense because ESG exchange traded funds are listed worldwide, and the popularity of ESG investing extends well beyond the confines of U.S. borders. However, bringing uniformity to ESG ratings globally is a long-ranging goal.
It’s going to take years to materialize, and in the meantime, simplicity is advantageous when it comes to ESG ETFs. Enter the Invesco ESG Nasdaq 100 ETF (QQMG ).
“Responding to investor demand for ‘high-quality, globally comparable sustainability information for the capital markets,’ the newly formed International Sustainability Standards Board issued two draft ESG reporting standards in March 2022. One focuses on general sustainability-related financial disclosures; the other on climate-related disclosures,” Morningstar analyst Lindsey Stewart notes.
QQMG, which turns a year old on Oct. 27, follows the Nasdaq-100 ESG Index. In simple, accurate terms, that gauge is the ESG derivative of the famous Nasdaq 100 Index (NDX).
In the case of QQMG, that DNA is meaningful for multiple reasons. First, it ensures that the ETF is home to a slew of familiar stocks – Apple (NASDAQ: AAPL), Microsoft (NASDQ: MSFT), and Tesla (NASDAQ: TSLA) among them. Second, tracking a derivative of the Nasdaq 100 ensures that QQMG’s methodology is easy to understand – clearly a benefit at a time when ESG methodology and credibility are taking center stage in the fund universe.
Additionally, QQMG is relevant for ESG investors because, as noted above, it will take some time for true uniformity to emerge in the world of ESG ratings.
“Given this broad range of views, we can expect the ISSB to give careful consideration to its next steps. Asset managers’ calls for the ISSB to extend its cooperation with other regulators and standard-setters add another dimension for this board to consider,” concludes Morningstar’s Stewart. “The ISSB aims to finalize the new reporting standards by the end of this year. Hopefully, by then, we will have a much clearer view of how a global baseline for ESG reporting could be achieved.”
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