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Why are clients considering ESG factors?

June 27, 2022 | Last updated on October 13, 2023
3 min read
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Credit: SDI Productions

Clients want to align their values with their investments. That’s why ESG factors have become increasingly important to them. In fact, 85% of investors have considered ESG factors when making investment decisions, according to Gartner.

“They want to have a positive impact,” says Marcus Berry, Vice-president, ETF Specialist, Invesco Ltd. “Implementing ESG allows investors that chance to exclude certain controversial sectors from their portfolios, be that tobacco, weapons, or certain types of energy stocks.”

One solution that factors into ESG is the Invesco ESG NASDAQ 100 Index ETF (QQCE), which is part of Invesco’s innovation suite of products. It’s similar to the Nasdaq-100, which is a passive index made up of the 100 largest non-financial U.S. companies on the Nasdaq Exchange, like Apple, Microsoft, and Amazon.

The difference is, the Invesco ESG NASDAQ 100 Index ETF has an ESG overlay, which excludes any companies that go against ESG factors. For instance, companies that are involved in nuclear energy, thermal coal, or weapons could be included in the Nasdaq-100 Index, but they may be excluded from the Nasdaq-100 ESG Index.

Berry notes that another reason why investors want to include ESG factors is because they see a chance to improve performance. “ESG has the potential to improve portfolio risk and return. There’s a lot of academic research that shows that by having an ESG overlay to your investments, it not only helps reduce risk, but also helps improve performance in the long term.”

For instance, from March 31, 2016, to March 31, 2022, the Nasdaq-100 returned an accumulative 239%, whereas the Nasdaq-100 ESG Index returned 248%, according to Nasdaq internal data.

If mid-cap companies are more suited towards your clients’ goals, then consider the Invesco ESG NASDAQ Next Gen 100 Index ETF (QQJE).

“What’s really exciting about this product and index is that it provides investors with an easy, diversified way to gain access to those up-and-coming companies,” says Berry. “Since 2010, 64 constituents of this Next Gen Index have graduated into the Nasdaq-100 Index, which includes names like Tesla, Netflix, and DocuSign.”

By partnering with Nasdaq, Berry notes that Invesco is able to provide innovative solutions. “The companies that Nasdaq invests in have some of the highest research and development spend in the world. What we want to provide for clients is that low-cost broad exposure to the underlying Nasdaq benchmarks.”

Overall, Invesco’s goal is to provide clients with choice.

“There’s an increasing investor demand for ESG, and we’re seeing that being driven both bottom up by investors asking for ESG, and top down whereby there are regulatory changes happening in the industry where we believe ESG’s going to be a greater focus,” he says.

“These indexes are a great first step for clients to access ESG because they’re designed to still be that core benchmark and provide a similar risk and return profile. They’re also very low cost, with a management fee of 20 basis points. For clients owning the Nasdaq-100 Index with Invesco who want to have an ESG overlay, we can simply switch them into our ESG version.”