With This ESG ETF, the Index Really Matters

Advisors and experienced investors know that when it comes to index funds and passively managed exchange traded funds, understanding the underlying index’s methodology is a critical element in charting outcomes.

That’s particularly true in the world of environmental, social, and governance (ESG) investing where indexes and funds are sprouting up at a rapid pace. Many of these products aren’t mirror images of each other, indicating that some ESG ETFs may have indexing advantages over rivals. The IQ Candriam ESG US Large Cap Equity ETF (IQSU) could be part of that group.

IQSU follows the IQ Candriam ESG US Equity Index, and that’s relevant because Candriam, a subsidiary of New York Life, has one of the most extensive histories of ESG commitment among asset managers. That’s a critical feature at a time when some investors are critiquing the ESG voting records of some asset managers and fund issuers, asserting that some of these firms are happy to introduce ESG funds while displaying corporate voting records that run contrary to ESG objectives.

“The asset managers, for their part, say there are now too many shareholder resolutions, and that they’re too prescriptive. Companies should be allowed to decide for themselves how to achieve their goals, especially those they’re already working towards, asset managers say,” reported Quartz.

Recently, ShareAction, which is a U.K.-based firm with expertise in corporate ESG campaigns, published a report examining how asset managers vote when facing ESG resolutions proposed by other investors.

“On average, the four largest asset managers supported 20% of resolutions in our 2022 assessment, compared to 32% in 2021,” noted ShareAction. “Because of the size of their holdings, these asset managers have a particularly large influence on corporate behaviour through their voting decisions. The $27 trillion in assets they manage is equivalent to the market capitalisation of the 250 largest companies in the US.”

Fortunately for investors considering IQSU, Candriam isn’t part of that quartet. In fact, the company behind IQSU’s underlying index scores particularly well when it comes to ESG voting records. ShareAction assigns Candriam an overall 98%. That score includes environmental and social scores of 98% and 97%, respectively, and a pay and politics score of 100%.

Based on the ShareAction rankings, just four asset managers score ahead of Candriam, and the provider of IQSU’s index places ahead of all major U.S.-based asset managers. Those are potentially notable points for investors mulling the ETF.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.