Credit risk will play a bigger role in ESG
EEnvironment, social and governance (ESG) are spreading in the realm of fixed income securities in the form of green bonds, where credit risk will play a more important role.
A report entitled âESG Credit Trends 2022â by research firm ESG Sustainable Fitch shows a strong correlation between ESG and potential credit risks. The by-product is what’s already happening in the ESG space, which is more of the issuance of ESG-linked bonds.
âSustainable Fitch expects to see more sustainable and sustainability-linked debt issued in 2022 as investors combine climate and social goals under single mandates,â said a Article on pensions and investments said.
âIn 2020, social and sustainability bond issuance nearly tripled from the previous year to over $ 250 billion, mainly thanks to pandemic government bonds providing social support to industries and workers affected by closures, according to the report. In contrast, the market’s green bond market grew by around 8% over the same period, âthe article adds.
A pair of ETF options in ESG
To add more ESG exposure to a portfolio, FlexShares offers a pair of Exchange Traded Fund (ETF) options. One of these funds is the FlexShares STOXX Global ESG Impact Index Fund (ESGG).
In accordance with the fund description, the ESGG looks for investment results that generally match the price and return performance (before fees and expenses) of the STOXXÂ® Global ESG Select KPIs index. The index is designed to reflect the performance of a selection of companies which, overall, have greater exposure to ESG characteristics compared to the STOXXÂ® Global 1800 Index, a market capitalization weighted index. Free float-adjusted companies incorporated in the United States or in developed international markets.
The fund uses the index as a starting point and then sifts through the companies, eliminating the following:
- Companies that do not adhere to the principles of the United Nations Global Compact
- Companies involved in controversial weapons
- Coal miners
Investors who do not want international exposure and prefer to continue investing in ESG in the United States can opt for the FlexShares STOXX US ESG Impact Index Fund (ESG), which seeks investment results that generally match the STOXXÂ® USA ESG Impact Index. The Underlying Index is designed to reflect the performance of a selection of companies which, overall, have greater exposure to ESG characteristics compared to the STOXXÂ® USA 900 Index, a weighted index based on the free float-adjusted market capitalization of US companies.
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