Environmental, social, and governance (ESG) investing has proven its mettle in the face of the Covid-19 pandemic, which can only bring wider adoption to a space that was already gaining in popularity.
Global investment firm JPMorgan has been effusive in its praise for ESG, comparing its resilience against Covid-19 to other major recessionary events that racked the capital markets in their own respective way.
“The COVID-19 crisis has not only brought on the greatest recession since World War II, but investors are also calling it the 21st century’s first “sustainability” crisis and one that has renewed the focus on climate change, acting as a wake-up call for decision-makers to prioritize a more sustainable approach to investment,” wrote JPMorgan’s co-heads of sustainability research Jean-Xavier Hecker and Hugo Dubourg.
“We believe that pandemics and environmental risks are viewed as similar in terms of impact, representing an important wake-up call for decision makers,” said Hecker and Dubourg. “The impacts of the COVID-19 crisis on the real economy and the financial system highlight the limits of most forecasting models, which do not deal well with non-linear, complex systemic risks.”
ESG ETF Exposure
Investors who want ESG exposure via an ETF wrapper can take a look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), which 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 ESG performance relative to their sector peers.
One ETF with a focus on low carbon emissions is the iShares MSCI ACWI Low Carbon Target ETF (CRBN ). The fund seeks to track the investment results of the MSCI ACWI Low Carbon Target Index, which is designed to address two dimensions of carbon exposure – carbon emissions and potential carbon emissions from fossil fuel reserves.