FEBRUARY 2018

Jeff Finkelman Speaks to ETF.com on the Impact of Principles-Based Investing in the ESG Space

Investors focused on incorporating ESG (environmental, social, and governance) factors into ETF investing have traditionally found that most fund opportunities focus on the “E” and the “G”. In most cases, environmental and governance factors deliver financial metrics that are easier to measure.

More recently, however, the ETF industry is starting to see new developments for principles-based investing. According to the article, there are two reasons for this evolution. First, greater corporate transparency and reporting allows fund providers to find securities aligned with specific social principles. Second, there’s a growing industry around creating ratings to score ESG criteria, with firms such as MSCI and Sustainalytics.

Examples of these principle-based funds include companies that encourage veteran workplace participation, based on a “military-friendly employers” list, or funds that track data provided by the Human Rights Campaign.

Athena Capital’s Jeff Finkelman says ETF impact investing is on the rise because of the stated desire on the part of millennials and others for more principles-based investing options.

“On the one hand, I think it’s exciting for investors that have an interest in accordance with their values, or who see ESG as  an investment opportunity, or as a way to mitigate risk, that there are potentially more viable options for them,” says Finkelman.

However, he notes, like any ETF investment, advisors need to dig into what kind of exposure the fund offers and how it fits into the overall portfolio.

Finkelman notes that when Athena implements an ESG strategy, even if its clients have very narrowly focused values objectives, “it’s balanced against the needs of their investment portfolio in terms of risk/return, liquidity, and all the other factors that go into building a well-balanced investment portfolio.”

The full ETF.com article, “Evolving Principles Changing ESG Space,” can be accessed here.

Jeff Finkelman is a Senior Research Associate, Impact Investments, at Athena Capital, where he concentrates on ESG and impact investing across all asset classes. He joined Athena Capital from the U.S. Small Business Administration, having served as an investment officer within the SBA’s Office of Investment and Innovation.