ne of the benefits of applying environmental, social and governance (ESG) to equity investing is that this style isn’t confined to domestic stocks. In fact, a large number of exchange traded funds combine ESG and ex-US stocks under one umbrella and that’s true of develop and emerging markets funds.
That’s important because when it comes clean tech and renewable energy spending, the U.S. is far from alone. Actually, the U.S. is far from first place. Regarding social and governance investing, there’s work to be done on those fronts in many developing economies, but that implies room for growth and added pertinence for the relevant investment strategies. Additionally confirm some emerging markets are prioritizing ESG-related financing.
“Sustainable finance incorporates ESG principles into business decisions and investment strategies, covering issues from climate change to labor practices,” according to the International Monetary Fund (IMF). “It has become more mainstream in emerging markets in part because of pandemic-related financing needs, such as healthcare, as well as Latin America’s surge in climate-related borrowing.”
Looking toward the remainder of 2023, international stocks, ESG and otherwise, there other reasons to consider international ESG ETFs. First, ex-US stocks are finally showing signs of life against domestic rivals. Second, international equities are more attractively valued than domestic fare. With those factors in mind, here are some international ESG ETFs to consider.
Calvert International Responsible Index ETF (CVIE)
Starting with a newcomer in the space, the Calvert International Responsible Index ETF (CVIE) debuted in January. Nonetheless, it’s relevant in the international ESG ETF conversation. The rookie ETF tracks the Calvert International Responsible Index and is primarily a developed market that attempts to beat the MSCI World ex-US Index.
As is the case with many comparable strategies, ESG and otherwise, CVIE has some value tendencies with financial services, industrial and healthcare stocks representing over 47% of the fund’s roster. That positions the fund to potentially benefit from the aforementioned low valuations on ex-US stocks. That’s a relevant point here and now.
“Many investors see better value in foreign stocks because they trade at a big discount to their U.S. counterparts,” reported Vicky De Huang for the Wall Street Journal. “Companies in the S&P 500 are trading at roughly 18 times projected earnings over the next 12 months, according to FactSet. That compares with the Stoxx Europe 600’s multiple of around 13 and the Hong Kong Hang Seng Index’s multiple of about 10 on a local currency basis.”
KraneShares MSCI China Clean Technology Index ETF (KGRN)
The KraneShares MSCI China Clean Technology Index ETF (KGRN) is arguably an underappreciated international ESG ETF, though the focus is primarily on the “E.” To say China is spending big on clean technology and renewable is an understatement. Last year, the country’s related expenditures totaled a staggering $546 billion, or more than Europe and the U.S. combined.
That could signal long-term opportunity with KGRN, which follows the MSCI China IMI Environment 10/40 Index. This international ESG ETF focuses on these themes: Alternative Energy, Sustainable Water, Green Building, Pollution Prevention and Energy Efficiency, according to the issuer. China’s sheer, data-confirmed dominance in the renewables space could be a direct long-term catalyst for KGRN.
“China also dominated in low-carbon manufacturing, accounting for more than 90 percent of the $79 billion invested in that sector last year,” reported Scientific American.
SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX)
As its name implies, the SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX) eschews exposure to fossil fuels producers. It can be a risky strategy because plenty of emerging markets are major oil producers. On the other hand, it ensures EEMX avoids Russian stocks and has lower exposures to other oil-producing developing economies. In turn, that can make for a lower volatility emerging markets mousetrap.
That doesn’t mean investors are susceptible to missed opportunity cost. Year-to-date, EEMX is modestly outpacing the MSCI Emerging Markets Index. Another advantage in avoiding traditional energy stocks is that EEMX’s exposure state-owned enterprises – often a disappointing asset class – is reduced.
And as a result of that, the international ESG ETF has something of a growth profile as technology, consumer discretionary and communication services stocks combine for over 47% of the fund’s roster.
Original Article: https://www.nasdaq.com/articles/3-etfs-for-globe-trotting-esg-investors
