Some environmental, social, and governance (ESG) exchange traded funds rebounded in the first half of this year following disappointing showings in 2022. This has been helped in part by often-substantial allocations to large- and mega-cap growth stocks.
Whether or not the resurgence continues in the second half remains to be seen. That said, ESG-enthused market participants and investors holding ETFs such as the Invesco ESG Nasdaq 100 ETF (QQMG B-) have plenty of ESG data to stay abreast on when it comes to the regulatory front in the second half of 2023.
It’s possible that various regulatory agencies, including the SEC, will introduce new rules pertaining to corporate-level ESG disclosures. This could perhaps bring much-needed clarity and uniformity to the space.
The SEC “is expected to adopt final rules requiring detailed disclosure by companies of climate-related risks and opportunities by the end of 2023. The newly-formed International Sustainability Standards Board (ISSB) is expected to adopt two reporting standards in June: one on climate-related risks, and a second on other sustainability related information,” according to the Harvard Law School Forum on Corporate Governance.
In financial markets, people often call added regulations onerous and negative. However, when it comes to ESG investing, the opposite might be true.
Adoption of ESG ETFs has surged in recent years. However, one clear element hindering broader use of these funds is lack of uniformity surrounding ESG regulations and scoring. With trillions of dollars of global assets allocated to ESG funds, bolstered regulatory guidelines could be more positive than negative. Additionally, some paring of ESG data sources could serve the industry well.
“The number of public companies publishing corporate sustainability reports grew from less than 20 in the early 1990s to more than 10,000 companies today, and about 90% of the Fortune Global 500 have set carbon emission targets, up from 30% in 2009 added Harvard.
Specific to QQMG, the Invesco ETF follows the Nasdaq-100 ESG Index. It also mandates that member firms remain compliant with the ESG standards outlined by the United Nations Global Compact. QQMG’s use of the United Nations Global Compact standards is potentially beneficial because those principles are global, not U.S.-specific. This is important when considering that the U.S. has been slow in bringing uniformity to ESG ratings and scoring.
For more news, information, and analysis, visit the ETF Education Channel.