I – Global information and fundamental analysis about ESG
An exchange traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index. In this report, we’ll focus on the ESG sector.
In recent years, ESG (environmental, social and governance) investing has become increasingly popular and is attracting a growing number of investors looking for safer and more profitable investments.
Graph 1 : Global growth in sustainable investment
Source : Visual Capitalist
ESG investment consists of investing in shares or bonds of a company that respects certain environmental, social and governance criteria. In other words, this strategy aims to evaluate not only the classic financial criteria (yield, etc.), but also the behaviour and actions of an economic actor before making an investment.
The 3 types of ESG criteria :
Environmental criteria: waste management, reduction of greenhouse gas emissions and energy consumption, sustainable prevention of risks related to industrial disasters (oil spills, soil contamination…)
Social criterion: respect for employees’ rights and social dialogue in management policy, parity and number of people with disabilities, prevention of work-related accidents, staff training
Governance criterion: fight against corruption, respect for transparency of management remuneration, relationship between shareholders, management and the board of directors.
Graph 2 : Types of criteria
Source : Cary Stamp & co
Contrary to popular belief, ESG investing is not primarily a strategy for people who want to actively contribute to environmental protection. It is true that many investors favour this type of investment to avoid having their capital contribute to climate problems.
However, one of the main advantages of investing in a stock or fund that takes into account good ESG (environmental, social and governance) practices is its return. Indeed, compliance with ESG criteria allows a company to significantly improve its performance, insofar as it reduces the risks of sanctions linked to environmentally harmful practices.
In addition to sanctions, an economic player that respects social and governance criteria is much less exposed to internal crises that can have a negative impact on its performance
Chart 3 : ESG Funds
Source : ETFGI
While ESG investment strategy allows you to choose your investments more carefully, it can also help you in your divestment decisions. We will now present an ESG fund invested in shares.
2 – ETF Analysis : Lyxor MSCI Europe ESG Leaders (DR) UCITS ETF – Acc
Today’s presentation will focus on the actions of the ESG pioneers in Europe.
Chart 4 : Chart characteristic
Source : Lyxor
Chart 5 : Performance of the fund
Source : Lyxor
Chart 6 : Top 10 Holdings
Source : Lyxor
We have just seen that it is difficult to build an ESG portfolio despite the upward trend in the number of ES shares and funds. For this reason, we propose an ETF invested in Europe on ESG pioneer stocks.