Do not name it a fad. Moral investing is right here to remain
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Given that billions of dollars are pouring into sustainable investment strategies, it’s safe to say that this is no longer a fad.
Investors put money in funds that use environmental, social, and governance criteria to review the companies they invest in.
Even passive investors are stepping in: According to Morningstar, there were 534 sustainable index mutual funds and exchange-traded funds worldwide, valued at $ 250 billion as of June 30.
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“I think sustainable investing in one form or another has been around for decades,” said Mona Naqvi, senior director, head of North American ESG product strategy at S&P Dow Jones Indices.
She spoke on Tuesday at the CNBC Financial Advisor Summit, a one-day virtual conference for financial advisors.
“What we’re seeing this time is that the currents are gaining momentum,” said Naqvi. Advances in data collection have helped drive ESG innovation.
“You can still incorporate ESG but design an index that looks and feels like the S&P 500,” she said, adding that this has made the strategy more accessible to mainstream investors.
While ESG strategies are gaining momentum in the US, it could take a while to become as popular as they are in Europe.
In fact, Europe accounts for more than 75% of global wealth in sustainable passive funds, according to Morningstar.
Morningstar found that the US represents 20% of those assets, up from 13% three years ago.
The difference in wealth growth is at least partly due to cultural differences between Europe and the US. Investors across the pond see sustainability as less of a political issue, Naqvi said.
“The materiality of topics like climate change is more established [in Europe]and it is seen not as a political but as a scientific problem, “she said.