Trieber continues: “In some cases, ETF issuers have incorporated policies that are integrated throughout the firm, from reducing carbon footprint to the actual implementation of ESG policies at a product level.”
She also follows Sagayam’s and McDermott’s comments on active management, explaining that ETF providers often work with an active overlay to avoid the very sort of issue that Sagayam mentioned earlier.
Trieber states: “ETF issuers often partner with external asset managers for the management... Robust procedures can allow tracking of the progress made from stewardship efforts on the one hand, and annual public reporting on the other.
“In the UK where stewardship reporting has become increasingly important, robust policies and procedures are integral to the success of stewardship efforts.
"By the same token, some external asset managers can appoint companies providing corporate governance solutions, such as Institutional Shareholder Services, that co-ordinate the voting and engagement activities on behalf of ETF investors."
It would thereby appear that when it comes to ESG, there are advantages and disadvantages investing in passive funds; it all comes down of course to the client's end objectives.
Advisers should consult their clients on what kind of approach they wish to take; proactively investing in green companies, selective and thematic or screening, for example.
They need to be aware that a 'green ETF' may have less diversification and be more heavily concentrated with possible impact on returns.
However, ETFs offer a transparent, accessible, and low-cost way of investing sustainably. For someone new to investment, someone who does not have a large pot of money to pay charges or someone wanting clarity and transparency in their ESG journey, ETFs could be a good choice.
ETFs and actively managed funds therefore could be seen to work well for different audiences. Alternatively, a transitional, integrated approach can apply to client portfolios that include green ETFs.
However, it is clear inclusion of ESG is vital if investors are going to play an integral role in improving the world in which we all live.
Anita Boniface is a freelance journalist
