ESG Investing  

Guide to passive ESG investing

  • Describe how passive ESG investing works
  • Explain how investors can engage in stewardship of ESG index funds
  • Describe how bond ESG index funds differ from equity based ESG index funds
CPD
Approx.60min
Guide to passive ESG investing
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Introduction

ESG investing has become very high profile in the last few years, as investors have forced fund houses to consider the long-term impact of their investments.

But while much of the focus has been in active investment, focus is shifting to indices, or passive investment as a potential way in to ESG investing.

The active sector may have the high profile managers who make a big story about how they select their stocks, but indices have their own way of making stock selections, which allow investors who favour passive investments a chance to also take account of ESG factors.

Part of this is because indexing does not have to be completely passive - smart beta strategies allow for some kind of stock selection, and even some strategies allow for overweighting some stocks.

In fact, for many investors, who want low cost investments with ESG credentials, with low involvement on stewardship, but with access to a broad range of stocks, ESG-based indices may be more suitable.

It is still possible to be involved in some of these stocks, however.

While there will not be the same level of active participation on the part of the fund manager, a stock that is excluded from an index based on ESG factors, will not attract the capital from investors.

As this guide aims to show, ESG investing through indices have a lot to offer.

In this guide

CPD
Approx.60min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Passive ESG investing is 100 per cent passive and involves no discretion on the part of a manager, true or false?

  2. According to Amer Khan, in the first feature, what is the next stage in ESG investing for index funds?

  3. According to the second feature, how can investors engage in stewardship of particular stocks?

  4. Index fund providers can threaten to disinvest from a company as a form of stewardship, true or false?

  5. According to the third feature why do credit investors have an opportunity to exert influence over companies' ESG issues?

  6. According to the third feature, why is there less uplift with passive ESG credit, than with ESG equities?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe how passive ESG investing works
  • Explain how investors can engage in stewardship of ESG index funds
  • Describe how bond ESG index funds differ from equity based ESG index funds

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