Invesco ESG ETFs

Investing in ESG with Invesco ETFs

ETFs have become key components in ESG portfolios

Environmental, Social and Governance (ESG) ETFs are growing rapidly, reaching $230 billion[1]  in 2021 driven by investor demand and key regulatory developments. Most responsible investors see ESG as more than just avoidance but also driving positive change. At Invesco, we take an active approach to engagement and proxy voting – a commitment you can see with how we engage with ESG through passives.

Investment risks

  • For complete information on risks, refer to the legal documents. The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested. The Funds intend to invest in securities of issuers that manage their ESG exposures better relative to their peers. This may affect the Funds' exposure to certain issuers and cause the Funds to forego certain investment opportunities. The Funds may perform differently to other funds, including underperforming other funds that do not seek to invest in securities of issuers based on their ESG ratings.

    An investment in the fund is an acquisition of units in a passively managed, index tracking fund rather than in the underlying assets owned by the fund. Any investment decision should take into account all the characteristics of the funds as described in the legal documents. For sustainability related aspects, please refer to  https://www.invescomanagementcompany.ie/dub-manco.

Spotlight on: Thematic ETFs

We’re living in an age of disruption, where everything appears to change at lightning speed. Technology is transforming or lives and redefining entire industries. Meanwhile, climate change, declining birth rates, and an aging population are due to reshape society.

These are just some of the ‘megatrends’ at work in the world today with the power to reframe the way we live, what governments prioritize and how businesses operate and succeed.

We offer a broad set of ETFs that seek to capture the opportunities to be found in some of these disruptive themes.

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Why Invesco for ESG ETFs?

Our ESG approach is centred around client needs. Most investors choose ESG ETFs for the same reasons they choose any other ETF: simplicity, low costs, transparency, tradability and often for the efficient way it tracks a reference index.

With all of our ESG ETFs designed to meet specific objectives, we provide our clients with complete clarity on their goals and precisely how they aim to deliver that outcome.

From ESG regulation to implementation

ESG ETF investing FAQs

Most investors choose ESG ETFs for the same reasons they choose any other ETF: simplicity, low costs, transparency, tradability and often for the efficient way it tracks a reference index. Their growing popularity can be seen in recent flows, as ESG ETFs gathered 50% of all net new assets in the European ETF market in 2021. With each Invesco ESG ETF designed to meet specific objectives, you have complete clarity on the goals and precisely how it will deliver that outcome. 

This has been an area of increased focus, with some studies suggesting a positive relationship betweeen a company’s financial and ESG performances. Moreover, some ESG indices have recently outperformed their parent (non-ESG) indices, which is partly due to the sector biases that occur naturally from exclusions, e.g. reduced weighting in energy, but could also be attributed to investors’ placing a “premium” on companies that are successfully managing ESG risks.

 

Whether or not ESG on its own can drive performance, investors can now find ETFs that have both ESG and financial objectives. You can choose between ESG ETFs that aim for similar returns as the parent index (with meaningful ESG improvement) or that have a greater tolerance for tracking error (with much more ESG improvement).   

With environment one of the three ESG pillars, most ESG ETFs will include climate considerations either implicitly or explicitly in the index methodology. Some of our Invesco ESG ETFs go a step further by having specific climate-related goals, such as the Paris-aligned benchmark, reducing overall carbon intensity and/or increasing the amount of green revenues in the portfolio. We also offer thematic ETFs for focused exposure to climate solutions such as clean energy and solar power. 

The simple answer is that any ETF that physically holds shares in a company can exercise its rights. All but one of our ESG ETFs replicate their indices by physically holding the shares. Our passive equity ETFs will vote in line with the largest active position held by Invesco, or with our ESG guidelines if no active position is held. Our global ESG team and investment managers engage with companies on key ESG issues, which includes many of those held by our passive ESG ETFs. 

We’ve been helping investors incorporate their ESG objectives for the past 35 years and aim to include ESG considerations across all our investment strategies where possible. We believe engagement is one of the most effective mechanisms to reduce risks, maximise returns and have a positive impact on society and the environment. We are also committed to being a good corporate citizen and are signatories to key industry initiatives especially in the fight against climate change.

As ESG continues to grow globally, different regions have made efforts to introduce regulatory standards. Regulation will be a key factor in ensuring that efforts to integrate ESG have a tangible impact. It’ll also help to drive the standardisation of measuring and reporting.

The EU has introduced green taxonomy, Sustainable Finance Disclosure Regulation (SFDR) and most recently, the Sustainable Finance Strategy to provide rules and structure to the way businesses report on their ESG activities.

Greenwashing is when companies portray a public image of sustainability but aren’t taking sufficient or tangible action behind the scenes or undertake other questionable business activities. It could be a global drinks company committing to using 100% recycled plastic but setting no actual target, or a fast fashion brand using sustainable materials but with questionable manufacturing processes. 

In the investment industry, it could be excluding obvious companies like tobacco manufacturers from a portfolio but not applying ESG analysis to the rest of it. Greater regulation and efforts to standardise measuring and reporting should help reduce the effects of greenwashing, as well as wider education. 

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Investment risks

  • The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

Important information

  • This marketing communication contains information that is for discussion purposes only.

    Data as at 31 December 2021, unless otherwise stated.

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