The rise in environmental, social and governance (ESG) investing has been a boon to the space, but with greater growth comes greater responsibility in ensuring that ESG data is consistent and complete. As such, Morningstar is pushing for more clarity when it comes to ESG data.
“Morningstar, which recently completed the acquisition of ESG data analytics provider Sustainalytics, said there are gaps and inconsistencies in the reporting of ESG data, but there are steps that can be taken to improve the situation. Morningstar noted that it’s working with various policy makers to facilitate changes,” a Financial Advisor article noted.
Morningstar is currently working in conjunction with the U.S. Department of Labor on addressing barriers to ESG investing. One of them relates to disclosures of ESG processes.
“ESG disclosures often cover different time periods than financial disclosures, making it difficult for investors to easily connect these ESG disclosures to financial results,” the Morningstar report said.
For more clarity, Morningstar suggests that ESG reporting incorporates computer-readable forms for easier interpretation of data. However, the primary issue circles back to better disclosure by major players in the capital markets, such as stock issuers and private equity.
“More than 50% of new capital is being raised in the private markets in the U.S., which are exempt from most disclosures," the report said. "These private issuances have minimal ESG disclosures at best. As more investors gain exposure to private firms, it will be increasingly important to consider the role of ESG data for nonpublic companies.”
ESG Exposure via ETFs
Getting ESG exposure has proven its mettle even amid the coronavirus pandemic. Even as economies around the world begin to reopen their doors, investors can gain exposure to ESG as equities indexes continue to recover, such as the S&P 500—that’s where the Xtrackers S&P 500 ESG ETF (SNPE) comes into play.
One thing that SNPE has going for it is the rise of ESG and it doesn’t look like it will slow down anytime soon. Unlike fashion, ESG doesn’t look to be a passing fad.
SNPE seeks investment results that correspond generally to the performance, before fees and expenses, of the S&P 500 ESG Index. The index is a broad-based, market capitalization weighted index that provides exposure to companies with high environmental, social and governance (“ESG”) performance relative to their sector peers while maintaining similar overall industry group weights as the S&P 500 Index. The fund uses a full replication indexing strategy to seek to track the underlying index.