Your Stealth 'ESG' Portfolio

July 10, 2019

While the headlines may have died down a tad, the pace of environmental, social and governance (ESG) product launches (and the volume of ESG-related email and chat questions I get) hasn’t.

The last few years have shown that ETFs focused on ESG issues are here to stay. So how do you actually think about ESG factors in your portfolio?

Finding The Data

You may notice today a few tweaks in some of the ESG data we show here at ETF.com. MSCI just revamped its ESG methodology a touch, primarily by adopting a “bond style” letter grading system that makes it much easier to glance down a list of ETFs and see how they compare.

For instance, in the ETF.com finder, you can see these scores under the ESG tab. So let’s say you were looking at growth ETFs:

 

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Sorted by the ESG rating, you can see that two funds stand out as “AA rated.” In MSCI speak, that means these funds are ESG leaders when all 37 key issues tracked by MSCI are considered, from the carbon footprint of the products made and sold by each company held in each ETF, to the pay structure of executives and the labor standards of each companies supply chain.

And while, yes, the top fund here is in fact an “ESG labeled” product from Nuveen, two of the funds that rate the very best here are in fact not making any claims about their “ESG-ness” at all!

So what’s going on here? It’s simple really—individual companies are what are measured, and that’s as it should be. No ETF issuer is making an impact simply by launching an ESG fund. The heavy lifting is done by the companies in the funds.

Sure, Nuveen in this case has built a methodology to specifically invest in as many of those companies as it can, but the iShares MSCI EAFE Growth ETF (EFG) here makes no such attempt, and yet it still earns an AA rating.

Checking Your Funds

Let’s approach the problem from another angle. Let’s say you’re invested in a typical portfolio of big, well-known ETF names. Your large cap exposure might be the SPDR S&P 500 ETF Trust (SPY). You can hop over to www.etf.com/SPY and find out all sorts of information, including this block under the “Fit” tab:

 

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(For a larger view, click on the image above)

 

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