Investors often conflate environmental, social and governance (ESG) with sustainable investing. That confusion stands to reason because these styles are often joined at the hip, particularly in mainstream financial media coverage.
However, these are two distinct styles. Where the confusion often arises is by virtue of the fact that sustainable investing encompasses ESG pillars – namely the “E” and the “S” in an effort to analyze how a company’s investment behavior affects the environment and society at large and whether or not those actions have tangible effects on investors.
“Most companies in the world are incrementally improving the environmental sustainability of their operations – for instance, by emitting fewer greenhouse gases or consuming less energy,” according to VanEck research. “Other companies are taking the transition a step further by fundamentally changing their behavior to improve the sustainability of their operations.”
Owing to the broad expanse of sustainable investing and still lingering fluidity in defining applicable methodology, investors may want to considering put their sustainable-focused investing values to work via exchange traded funds. Here are a few to consider.
SPDR MSCI USA Gender Diversity ETF (SHE)
The SPDR MSCI USA Gender Diversity ETF (SHE) is one of the pioneers in gender lens investing ETF space, making it relevant in broader discussions on sustainable investing. SHE, which is more than seven years old and follows the MSCI USA Gender Diversity Select Index, focuses on companies with above-average percentages of women on boards of directors, C-suite positions and throughout upper management.
For investors new sustainable investing, they might need to be convincing that gender lens investing is credible and potent. Data confirm it is.
“Companies with women in executive management repeatedly outperform companies that have no women in senior roles. This is the same case for companies with women on their boards,” according to the Gender Impact Investing Network (GIIN). “With 50% of the world’s population being women, this group is underrepresented in the workforce. This represents an underutilized pool of talent, and limits diversity within an organization.”
VanEck Green Bond ETF (GRNB)
The VanEck Green Bond ETF (GRNB) is the original ETF dedicated to green bonds –a former of debt issued to fund environmentally friendly projects. In other words, GRNB is a fixed income idea for sustainability inclined to investors looking to focus on the “E” in ESG.
GRNB, which follows the S&P Green Bond U.S. Dollar Select Index, is unique among bond ETFs not only because green bonds are young in the fixed income space, but also because the fund features a mix of corporate and sovereign debt. It also sports a tantalizing 30-day SEC yield of 5.30% without subjecting investors to significant credit risk. Additionally, the green bond market is taking off in terms of size.
“Global issuance of new green bonds, the largest category of sustainable debt by amount, reached $163.9 billion in the first quarter, breaking a previous record of $143.1 billion set in the last three months of 2021, according to data compiled by Bloomberg,” reported David Caleb Mutua for Bloomberg. “Sales of the bonds are up 32% year-on-year, the data shows.”
Calvert International Responsible Index ETF (CVIE)
The Calvert International Responsible Index ETF (CVIE) is one of the newer additions to the ESG/sustainable ETF fray, having debuted in January. It could be a good one, too, owing to Calvert’s experience with ESG investing and the point that international equities are finally showing signs of life.
CVIE follows the Calvert International Responsible Index and focuses on companies whose management teams are showing “effective management of key environmental, social and governance (ESG) risks and opportunities.”
Moreover, CVIE is relevant at a time when many ex-US firms have increasingly global revenue streams, which could lead to better long-term performance.
“Globalizing revenue sources have likely contributed to equity markets moving in lockstep. Developed markets, which are the most globalized, are more correlated with each other than emerging markets are with developed markets,” notes Morningstar Indexes strategist Dan Lefkovitz. “To bring this concept to life, think about biopharma companies. Whether they’re based in the U.S., France, Switzerland, or Japan, they are exposed to many of the same forces.”