Can responsible investment (RI) lead to better performance for investors? How can ETFs help you incorporate RI in your investment portfolio? BlackRock Canada’s Hail Yang provides some useful perspective in this 5-minute video.
Watch time: 4 minutes 30 seconds
View transcript
Why is integrating ESG an important consideration when building portfolios?
We see sustainability-related risks as investment risks. And our high-conviction view is that these sustainability-related risks are mispriced by markets today and that the long-term nature of the financial and portfolio implications of things like climate change and shifts to sustainable economies is actually under-appreciated and not reflected in asset values by markets today.
Our expectation is, therefore, that over time, we’ll see a repricing of assets across sectors and geographies which will favour and reward companies that are demonstrating more favourable sustainability characteristics and higher ESG ratings, and penalize companies that are exhibiting more unfavourable sustainability characteristics, or lower ESG ratings.
Put another way, we see a performance advantage to be gained as an investor, a risk-adjusted return enhancement to be earned by owning sustainable assets over the long run. And this is the main reason why we see sustainability and ESG-integrated ETFs and portfolios as being important as investors.
How has responsible investing with ETFs evolved in recent years?
If you rewind even just a few years, what you would have probably found is that responsible investing and sustainable investing as a category was considered by many to be quite niche. And the products available in the market were broadly reflective of that. They were narrow in focus. They were thematic. They were quite expensive often. And the portfolio use case for them was often as sort of a satellite exposure relegated to the corner of a portfolio.
The evolution that we have tried to lead in Canada and elsewhere around sustainable investing is to expand access to address a whole portfolio approach to sustainable investing. So, in the same way that you can efficiently use index ETFs like S&P 500 and FTSE Universe Bond ETFs to construct whole portfolios, we wanted to deliver the same to the investor with sustainable foundational building blocks.
There are three critical components I think to how we’ve approached that.
One is broad ESG integration, so the integration of a deep and rich dataset across the ES&G components to evaluate companies more comprehensively.
Two is these portfolios and these indexes are constructed from traditional benchmarks as their starting place, and so the sustainable index portfolio you get as a result is going to be reflective of broad markets. It’s going to be diversified, and they’re going to be modular in the way that traditional index ETFs are modular.
And finally, low cost. The technology offered by indexation and the scale offered by our platform allows us to deliver these products at extremely low cost, as affordable options suitable for long-term holdings at the core and centre of your portfolio.
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