Those just joining the responsible-investing wave might not have to ditch non-ESG funds right away
An investor’s decision to shift toward responsible investing may be concerning for some financial advisors, especially if they imagine having to recalibrate their client’s portfolio to include ESG-specialized products. But for portfolios that contain the right funds, the shift might not be so drastic.
In a new analysis, Morningstar examined the proxy voting behaviour of the 50 largest fund companies over the past five years. Specifically, it focused on over 1,000 ESG-related shareholder resolutions, while excluding the votes from companies ESG-themed funds.
Over that period, the fund research firm found that support for ESG-related resolutions rose from 27% to 46%. In the five years ended June 30, 2019, DWS, Allianz Global Investors, Blackstone, Nuveen, and AQR demonstrated the most support for such resolutions; in contrast, the least supportive firms were Federated, Hartford Funds subadvised by Wellington Management, J.P. Morgan Asset Management, Pioneer Funds, and American Funds.
Focusing solely on proxy votes during the 2019 season, Allianz Global, Blackstone, DWS, Eaton Vance, and PIMCO were placed in the top five ESG-supporting fund families. Notably, BlackRock’s iShares and Vanguard were among the five weakest supporters, along with American Funds, Dimensional Fund Advisors, and T. Rowe Price.
Of course, BlackRock has been working to improve its standing among ESG advocates. The firm joined a global coalition of investors against climate change. Shortly thereafter, that commitment was reinforced by CEO Larry Fink’s open letter to business leaders warning that BlackRock will cut investments in companies that have high sustainability-related risk.
The implication is clear: by buying funds from providers with favourable ESG voting records, investors can ease themselves into the sustainable-investing space.
For some people, that might not be enough: they may want more reassurance that the specific funds or ETFs they buy have an ESG-friendly portfolio. And with one index provider’s fund rating system, they may very well get it.
Last year, MSCI unveiled a new ESG ratings system under which it scored 32,000 funds and ETFs on a scale from AAA (leader) to CCC (laggard). Aside from the usual information on fund managers, it promised to give an overall picture of a fund’s performance across 200 metrics including carbon footprint, water exposure, and governance risks.
In a commentary written shortly after the ratings system was launched, Dave Nadig, who was then the managing director of ETF.com, noted that the US-listed iShares MSCI EAFE Growth ETF (EFG) merited an AA rating, even though its investing strategy didn’t specifically aim for any ESG objectives.
“The point here … is that you don’t have to jump into ESG investing with both feet to include it in your portfolio construction process,” he said in the piece published on ETF.com. “[I]f you’re interested in ESG but unclear how to include it in your or your clients’ portfolios, consider just starting by measuring what you already own
