Is ESG Investing the Future? Discover the Trends

At Quantlake, we focus on empowering investors to make informed decisions with data-driven insights. A growing area of interest for many investors today is ESG investing, but what exactly does that mean?

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🌱 What is ESG Investing?

ESG stands for Environmental, Social, and Governance. These are the three main factors that investors consider when evaluating the sustainability and ethical impact of an investment:

1. Environmental 🌍: How does a company impact the planet? This includes everything from carbon emissions to waste management.
2. Social 🤝: How does a company treat its employees, customers, and the communities it operates in? This can involve labor practices, diversity, and community engagement.
3. Governance 🏛️: How is a company managed? This factor looks at executive pay, shareholder rights, and transparency.

By prioritizing Environmental, Social, and Governance (ESG) factors, investors seek to align their portfolios with companies demonstrating not only financial profitability but also a strong commitment to sustainability and responsible business practices. Emerging evidence suggests that these companies often exhibit enhanced long-term performance, including greater resilience during economic downturns. A 2015 study in the Journal of Sustainable Finance & Investment corroborates this trend, finding that firms with robust ESG profiles tend to weather economic storms more effectively.

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📈 Quantlake’s ESG Portfolios: Balancing Performance with Principles

We’ve developed two classic portfolios that prioritize ESG principles: the US ESG 60/40 and the US ESG 80/20. These portfolios include two key funds:

• SPDR S&P 500 ESG ETF (EFIV): This ETF tracks companies in the S&P 500 that have strong ESG practices.
• iShares ESG U.S. Aggregate Bond ETF (EAGG): This bond fund focuses on U.S. bonds with high ESG ratings.

The portfolios are weighted 60% EFIV / 40% EAGG and 80% EFIV / 20% EAGG, with quarterly rebalancing. Since their inception in July 2020, they’ve shown impressive growth: the US ESG 60/40 portfolio has a compound annual growth rate (CAGR) of 8.4%, and the US ESG 80/20 portfolio has grown by 11.8%.

These results highlight the potential for ESG-focused investments to deliver solid returns while promoting sustainability. Compared to our Classic US 60/40 and US 80/20 portfolios, these ESG portfolios perform competitively. For those seeking responsible, effective investing strategies, the US ESG 60/40 and US ESG 80/20 portfolios are excellent choices.

📚 Why ESG? The Research Backs It Up

The surge in ESG investing reflects a growing recognition that financial returns and societal impact can coexist. Research consistently supports this notion. A 2019 meta-analysis published in the Journal of Business Ethics revealed that companies with strong ESG performance tend to outperform their peers in terms of risk-adjusted returns and long-term value creation. This evidence underscores ESG investing as a strategic approach for investors seeking to balance profitability with positive environmental and social impact.

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💼 Takeaway

At Quantlake, we’re committed to providing you with the tools and insights needed to navigate the world of ESG investing. Whether you’re interested in our Classic and Free US ESG 60/40 or US ESG 80/20 portfolios, you can invest confidently, knowing that your money is working towards a more sustainable and ethical future.

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Happy Long-Term Investing!

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Romain Gandon, CEO & Founder of Quantlake
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