DWS Group Inc., the asset-management business of Deutsche Bank AG , recently raised $843 million in a single day for a new fund that tries to invest in the best corporate citizens in the U.S.
It was one of the most successful exchange-traded-fund debuts of all time, and especially noteworthy in the slow-growing corner of the market devoted to responsible investing.
For years, asset managers have been trumpeting a new dawn for strategies that deliver competitive returns along with a clear conscience. In the past year alone, firms including Vanguard Group, Goldman Sachs Group Inc. and BlackRock Inc.’s iShares have introduced more than a dozen ETFs that use environmental, social and governance scores to pick stocks and bonds.
But investors have been slow to buy into so-called ESG funds. The triumphant inaugural run of DWS Group’s Xtrackers MSCI USA ESG Leaders Equity ETF may signal a step change in investor participation.
The International Organization of Securities Commissions (IOSCO) is this month publishing a statement setting out the importance for issuers of considering the inclusion of environmental, social and governance (ESG) matters when disclosing information material to investors’ decisions.
The statement does not supersede existing laws, regulations, guidance or standards or relevant regulatory or supervisory frameworks in specific jurisdictions, or any IOSCO Principles.
As underlined by IOSCO in its Objectives and Principles of Securities Regulation, securities regulation has three key objectives: protecting investors, ensuring that markets are fair, efficient, and transparent, and reducing systemic risk. IOSCO Principle 16 states that issuers should provide “full, accurate, and timely disclosure of financial results, risk, and other information which is material to investors’ decisions.” With regard to this Principle, IOSCO emphasizes that ESG matters, though sometimes characterized as non-financial, may have a material short-term and long-term impact on the business operations of the issuers as well as on risks and returns for investors and their investment and voting decisions.
II. Developments in the disclosure of ESG information
Disclosure of ESG information in the market has increased in recent years. Examples of ESG matters that issuers are disclosing include environmental factors related to sustainability and climate change, social factors including labor practices and diversity, and general governance- related factors that have a material impact on the issuer’s business.
Consider green bonds, issued by governments, banks, municipalities and corporations. The bonds aim to negate the effects of climate change by financing “green” assets in energy, water, heavy industry and the like. Over the past 11 years, some $500 billion in green bonds have been issued, including $138 billion in 2018 through November, the Climate Bonds Initiative says.
On top of that, the money raised from green bonds isn’t linked directly to a specific project or property, so it is up to issuers to update investors on how the money is being used.
Helping countries and cities counter the risks of a changing climate
Increasingly, people, governments and corporations must cope with the impact of climate extremes. The Notre Dame Global Adaptation Initiative (ND-GAIN) aims to help private and public sectors prioritize climate adaptation, ultimately lowering risk and enhancing readiness. With knowledge from ND-GAIN, leaders can gauge countries and cities based upon critical environmental, economic and social sectors.