Abstract
This chapter explores whether investing with environmental, social, and governance (ESG) issues in mind has turned into a compelling investment premise for fund managers. They have traditionally chosen from a variety of investing styles to establish the specific parameters of their portfolios. These styles range from company size, value, and growth for stock funds to maturities and credit qualities for fixed-income funds. But lately, concerns brought forward by increased awareness of ESG issues have gradually pervaded all traditional categories of style investing. By increasingly influencing overall decision-making regardless of style, these issues have turned into a compelling investment premise for these managers.
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Notes
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There are a few variants of ESG investing, ranging from investing only in stocks and bonds issued by companies that promote ESG actions and avoiding stocks of those that offend ESG core values, to more balanced approaches that expand the scope of the investment selection process to include criteria based on ESG without excluding less ESG-principled companies if they are capable of investment performance.
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Schueth, S., “Socially Responsible Investing in the United States,” Journal of Business Ethics, 43 (2003), pp. 189–194.
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Entine, J., “The Myth of Social Investing,” Organizations & Environment, 16 (2003), pp. 352–368.
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The Public Company Accounting Oversight Board was created by the Sarbanes-Oxley Act to enforce tougher auditing standards (http://pcaobus.org/Pages/default.aspx).
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It’s the process by which an ETF issuer takes in and disburses baskets of assets in exchange for the issuance or removal of new ETF shares.
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ETF Global LLC is an independent management consulting firm that offers investment advice, research support, and risk analytics services focusing on the ETF industry (http://www.etfg.com).
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A few sources, such as Morningstar, suggest a threshold of 70 for R2, below which both alpha and beta become unreliable predictors, but others disagree.
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ETFs whose holding companies are selected based on their positive environmental characteristics.
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Note that this underperformance was recorded after the 2008–2009 financial crisis.
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Meziani, A.S. (2016). Finding Value in Environmental, Social, and Governance ETFs. In: Exchange-Traded Funds. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-39095-0_8
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DOI: https://doi.org/10.1057/978-1-137-39095-0_8
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Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-137-39094-3
Online ISBN: 978-1-137-39095-0
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