By: Thomas Fekete, EMEA Head of Strategy and Products for Sustainable Investing at BlackRock
Here are the five reasons why we believe sustainable indexing gives investors the clarity they need to build more sustainable portfolios.
1. Indexing puts you in control of what type of sustainable investor you want to be.
Sustainable investing is not one size fits all and means different things to different investors. The broad range of indices available, and the transparency they offer, allow you to pick the approach that’s appropriate for your portfolio.
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2. Sustainable indexing can help provide a consistent approach across a portfolio.
As investors transition to sustainable investing, an indexing approach may help to ensure sustainability is expressed in a consistent way across the entire portfolio. Indices are inherently rules-based, so the screens and ESG integration they deploy are repeatable, regardless of asset class or exposure.
3. Sustainable indexing drives industry standardisation, promotes disclosure and can help motivate better corporate behaviour.
We believe that indexing is bringing clarity to the sustainable investing space by providing transparency and accelerating the adoption of new market standards. This is one of many reasons why we believe investors will choose to put an extra 1 trillion USD into sustainable index assets in the next decade.
4. Sustainable indices have shown resilience in difficult times.
During this year’s market dislocation, a majority of sustainable indices exhibited resilience relative to broad market benchmarks.* We believe this is because sustainable indices are generally comprised of companies with higher profitability and lower levels of leverage than the broader market.
5. Index fund asset managers with active investment stewardship seek to drive long-term change.
Indexing amplifies the impact of company engagements because index investors typically take a long-term view. Those who are sustainability-minded can exercise influence with companies through engagements across environmental, social and governance topics.
Risk: Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
*Source: BlackRock with Q1 2020 data from Bloomberg and Morningstar as of May 7, 2020.
Over 90% of sustainable indices outperformed their parent benchmark during this period of the heightened market uncertainty and drawdown.
Capital at risk. This information should not be relied upon as investment advice, or a recommendation regarding any products, strategies. The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
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