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If investors thought ESG would go away, 2020 really caught them by surprise. In 2021, experts are still projecting ESG assets to reach more than one-third of global assets under management in 2025.
In this episode, Evan McCall, Second VP investment strategist in asset management for FlexShares exchange traded funds, discusses one of the more attention-grabbing investment categories known as environmental, social, and governance. We’ll dive into how the market concentration has changed due to the global pandemic and what’s next for ESG.
In this episode you will learn:
- What is ESG (environmental, social, and governance)
- The conditions of the ESG space before COVID-19
- The recent developments in ESG
- What may happen to ESG going forward
Listen as Evan, shares insight on the true impact of ESG.
Resources: FlexShares | Evan McCall | ESG | ESGG | ESG Performance Impact | ESGG Performance Impact
Definitions:
- Basis point: Basis points, otherwise known as bps or “bips,” are a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument.
- MSCI World Index: is a stock index that tracks about 3,000 stocks in 49 developed and emerging market countries, representing a total market capitalization of tens of trillions of dollars
- Russell 1000 Index: a subset of the Russell 3000 Index, represents the 1000 top companies by market capitalization in the United States.
- S&P 500 Index: The S&P 500 Index, or the Standard & Poor’s 500 Index, is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.
- KPI: Key performance indicators (KPIs) measure a company’s success versus a set of targets, objectives, or industry peers.
- Tracking error: the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark.
Key Performance Indicators (KPIs) are a measurable value (i.e. not subjective) that demonstrate how effectively a company is achieving a particular key business objective. Essential general criteria for KPIs:
- Depict a correlation to risk or success factors within a corporate business
- Significant and relevant for investment decisions
- Firmly anchored in the corporate management system
- Quantified, comparable, and benchmarkable from peer to peer
- Depict dynamics, i.e. from reporting period to reporting period
- Manageable in dimension
The STOXX® USA ESG Select KPIs Index and the STOXX® Global ESG Select KPIs Index selection process also seeks to identify the materiality of each KPI and ideally distinguish those that may significantly impact risk/return with strong predictability.
Based on the above criteria, KPIs that were selected and weighted:
- CDP emission/energy reduction targets
- Percentage of women on the board
- Percentage of independent directors
- Policy against child labor
- Golden parachute agreements
In addition coal miners, violators of United Nations Global Compact principles, and companies involved with controversial weapons are excluded.
Disclosures:
Diversification does not assure a profit nor protect against loss in the current market
Before investing, carefully consider the FlexShares investment objectives, risks, charges and expenses. This and other information are in the prospectus and summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Foreside Fund Services, LLC, distributor.
FUND RISKS
An investment in FlexShares is subject to numerous risks, including possible loss of principal. Fund returns may not match the return of the respective indexes. A full description of risks are in the prospectus and summary prospectus. FlexShares STOXX® Global ESG Impact Index Fund (ESGG) is passively managed and uses a representative sampling strategy to track its underlying index. Use of a representative sampling strategy creates tracking risk where the Fund`s performance could vary substantially from the performance of the underlying index. The Fund is subject to environmental, social and governance (ESG) Investment Risk, which is the risk that because the methodology of the Underlying Index selects and assigns weights to securities of issuers for non-financial reasons, the Fund may underperform the broader equity market or other funds that do not utilize ESG criteria when selecting investments. The Fund is also at increased risk of industry concentration, where it may be more than 25% invested in the assets of a single industry. Investments in foreign market securities involve certain risks such as currency volatility, political and social instability and reduced market liquidity.
To the extent that the Fund invests in Emerging markets, those investments may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that country, market, industry, sector or asset class. The Fund may also invest in derivative instruments. Changes in the value of the derivative may not correlate with the underlying asset, rate or index and the Fund could lose more than the principal amount invested. The STOXX® Global ESG Impact Index is the intellectual property (including registered trademarks) of STOXX® Limited, Zurich, Switzerland and/or its licensors (“Licensors”), which is used under license. The securities based on the Index are in no way sponsored, endorsed, sold or promoted by STOXX® and its Licensors and neither of the Licensors shall have any liability with respect thereto. Price to Earnings is calculated as a company’s current stock price divided by its earnings per share. Price to Book is calculated as the market value of all common stock shares of a company divided by the book value of the company. All data provided by: Northern Trust, J.P. Morgan, Rimes, Morningstar and Refinitiv
Performance data quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed or sold in the secondary market, may be worth more or less than the original cost. Investors will incur usual and customary brokerage commissions when buying or selling shares of the exchange-traded funds (“ETFs”) in the secondary market, and that, if reflected, the brokerage commissions would reduce the performance returns. Current performance may be lower or higher than the performance shown. Shares are bought and sold at market price not net asset value (“NAV”) and are not individually redeemable from the fund. Call 855-FLEXETF (855-353-9383) for more information.
Click here for ESG standardized performance and index definitions
Click here for ESGG standardized performance and index definitions