These and many other sustainableinvesting initiatives are taking placeagainst a backdrop of shifting perspectives on sustainability issues, which wasa key topic in many investment outlookwebinars and briefings this reporterattended in the past two months.
“It used to be about how much
investors were willing to give up to
achieve sustainability objectives,” said
Jean Boivin, head of the BlackRock
Investment Institute. “Now it’s not
about the tradeoff but about sustainabil-
ity as a driver of returns, which will play
out over years.”
William Davies, head of global equi-
ties at Columbia Threadneedle, said,
“Whenever we look at a company we
need to look at ESG factors because that
will have an impact on the risk of a com-
pany and its potential rewards.”
That has been borne out by some
investment returns this year.
An analysis by S&P Global published inlate December found that as the yearprogressed the performance of the S&P500 ESG Index, which includes 300 ofthe S&P 500 companies, those with relatively higher ESG scores outperformedthe S&P 500 by close to 2%.
“We are talking about resilience,” wrote
Nathan Hunt of S&P Global. “Change
is upon us — environmental change,
social change, technological change, and
geo-political change. ESG scores, bench-
marks, and data are a way of measuring
a company’s or a portfolio’s ability to
weather that change effectively.”
He encourages advisors to be more
proactive about sustainable investing,
asking clients about their preferences,
preparing for their responses and put-
ting together a solution that they think
will fit client needs.
“Prepare for a general investmentsolution; it doesn’t have to be customized for everybody,” Hale said, pointing to a wide range of solutions frombasic ESG-tilted portfolios all the wayto focused impact funds, as well asmodel portfolios.
Morningstar recently began formallyintegrating ESG factors into its analysisof stocks, funds and asset managers,starting with analysis of more than 145funds and 40 asset managers.
SEC’s Investor Advocate DecriesDeregulatory Agenda Under Clayton
The Securities and Exchange Commission’sderegulatoryagendaunder former Chairman Jay Clayton,characterized as efforts to “modernize” or “streamline” rules, diminishedinvestor protections, according to SECInvestor Advocate Rick Fleming.
In its year-end report to Congress, the
SEC’s Office of the Investor Advocate
also told lawmakers that the commission
also failed to “prioritize repairs to the
antiquated infrastructure of the proxy
voting system, bypassed opportunities to
make disclosures machine-readable, and
failed to establish a coherent framework
for the disclosure of environmental,
Fleming’s office suggested reversal of
what the Investor Advocate Office consid-
ered “the most troubling recent actions”
of the commission: the shareholder pro-
posal rule, the proxy advisory firm rules,
a rulemaking to “harmonize” various
Securities Act registration exemptions,
and a rulemaking related to inverse and
leveraged exchange-traded funds.
The launch of the first nontransparent ETFs during 2020 represented “asignificant milestone for the ETF industry while triggering potential new investor protection concerns,” the 96-pagereport states.
As the report explains, unlike traditional ETFs, nontransparent ETFs arenot required to disclose their portfolioholdings on a daily basis. This feature enables asset managers to utilizethe ETF structure for active portfoliomanagement strategies without exposing their proprietary strategies to themarketplace. The feature also necessitates, however, that a nontransparentETF find a satisfactory replacementor substitute for the transparency-based arbitrage mechanism that hasbeen at the conceptual core of ETFsfor decades.
“Given the very recent launch ofthese products, it is too early for us toconclude whether the various arbitragemechanisms utilized by nontransparent ETFs are as safe and effective asthe traditional, transparency-based ETFarbitrage mechanism,” the report notes.
The Office of the Investor Advocatewas created by the Dodd-Frank Act.Fleming was the first person named tothe post in 2014. Though he reports tothe SEC chair, he submits two reports ayear directly to Congress.
Bernice Napach can be reached at firstname.lastname@example.org. Washington Bureau Chief MelanieWaddell can be reached at email@example.com.