Once considered a niche market within the investment universe, strategies that integrate environmental, social and governance (ESG) concerns into their investment process have hit the mainstream.
This has been driven by several social movements and the recognition that there is still a great deal of work to be done, particularly from a financial standpoint, to address issues ranging from climate change and gender equality to indigenous rights.
Investors who are just beginning to incorporate ESG elements in their portfolio may prefer a passive strategy for a few reasons.
First, a passive approach may offer exposure to a broad large cap segment in the market, which might make it suitable as a core portfolio holding.
Second, you get a level of transparency into which ESG elements are being incorporated alongside the other financial considerations for building the portfolio.
For an ETF, the rules are transparent and public, so the investor can evaluate the strategy before buying into it.