Socially responsible investments like ETFs that track environmental, social and governance factors may seem new to some investors, but many are looking to strategies that reflect their own personal values.
“We have our own custom ESG engine that allows our portfolio management team to implement sustainable investments across equity, fixed-income and real estate,” Sean Edkins, Head of ETF Sales, DWS, said at the 2019 Charles Schwab IMPACT conference.
Edkins also emphasized that these ESG strategies don’t necessarily sacrifice returns to achieve their goals as many socially responsible investments have exhibited improved risk-adjusted returns over time. Academic research has also shown a strong evidence that environmental, social and governance factors positively influence corporate valuation and investment performance.
DWS has also partnered with MSCI Inc. to launch a number of ESG-themed ETF strategies to help investors find a more readily accessible means to tap into this investment methodology. For example, the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG) has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high environmental, social and governance (ESG) performance relative to their sector peers.
Other options include the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG), Xtrackers MSCI Emerging Markets ESG Leaders Equity ETF (EMSG) and Xtrackers MSCI ACWI ex USA ESG Leaders Equity ETF (ACSG). The ETFs try to provide exposure to companies with high ESG-related performance relative to their sector peers. The underlying index is based on MSCI ESG Ratings, MSCI ESG Controversies and MSCI Business Involvement Screen Research to determine index components.
More recently, DWS launched the Xtrackers S&P 500 ESG ETF (SNPE), which is among the first ETFs to track the S&P 500 ESG Index, the environmental, social and governance derivative of the widely followed S&P 500 Index. SNPE’s underlying index seeks to target 75% of the float market capitalization of each Global Industry Classification Standard Industry Group within the S&P 500 Index, using an ESG score as the defining characteristic.
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