Now more than ever, especially with skyrocketing oil prices, environmental, social, and government (ESG) investing is becoming a core component of the capital markets. As the world looks to take the necessary measures to reduce its carbon footprint, look to niche areas like climate change for opportunity.
“Given both the government and corporate decarbonization pledges that we’re seeing, and public awareness of the issue, our expectation is that huge quantities of capital are going to be withdrawn from sectors that emit carbon and reinvested in those that aid the transition,” said Marina Severinovsky, head of sustainability, North America for Schroders, in a Pensions & Investments article.
As such, one exchange traded fund (ETF) to look at is the FlexShares ESG & Climate US Large Cap Core Index Fund (FEUS). The fund follows the Northern Trust ESG & Climate US Large Cap Core Index, which is designed to construct a universe of large-cap companies that possess ESG characteristics.
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The index is designed to reflect the performance of a selection of companies that exhibit certain ESG characteristics, while also seeking to provide broad-market, core exposure to publicly traded U.S. large-capitalization equity securities, including the 600 largest companies in the Northern Trust 1250 Index, as measured by largest float-adjusted market capitalization.
Opportunities Outside the U.S.
To add an international flavor to climate change investing, ETF investors can look at the FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (FEDM). The fund seeks investment results that correspond generally to the price and yield performance of the Northern Trust ESG & Climate Developed Markets ex–U.S. Core Index.
Best of all, the fund comes with a low net expense ratio of 0.12%, which is remarkably lower than its category average. In summary, FEDM:
- Is designed as a cost-effective core building block of a portfolio, incorporating risk controls to reduce tracking error and deliver market-like exposure relative to the starting universe.
- Applies a multi-dimensional ESG framework, incorporating exclusions across ESG controversies and business involvement while seeking to deliver ESG uplift.
- Uses the Northern Trust ESG Vector Score, which is focused on financial materiality and aligned with industry standards Sustainability Accounting Standards Board (SASB) and Tax Force on Climate Related Disclosures (TCFD), integrating not only historic metrics and indicators, but also those that assess how exposed a company may be to future risks and opportunities.
- Places intentional emphasis on reducing climate transition risk by reducing ISS carbon emissions intensity and improving ISS Carbon Risk Rating.
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