September 2021
AAM Magazine
September 2021

Implementing ESG in index strategies

By Amundi   
  • Asia
  • Global

A passive investor has two key axes through which to integrate ESG values in their investment strategy. The first is the investment itself – using the full spectrum of sustainable indices to find one that aligns with their values and investment objectives. This could be an exclusionary approach, removing a specific exposure, or a more stringent best-in-class index. By only using this axis, investors could miss an opportunity to increase their impact. It is by digging deeper that they can fully integrate their values – using the axis of engagement.

For most ETF investors, index and fund selection are their primary considerations; it is true that ensuring the index is aligned with investors’ objectives is very important. And checking that the product tracks the index consistently is essential, as is finding a fund at the right price. But what about the ETF provider, why does that matter?

Using your voice

Passively managed assets qualify for the same shareholder rights as actively managed holdings. Using those rights is a valuable way for asset managers to drive sustainable change and to ensure that investor objectives are met. For example, an investor may choose an ESG ETF because they believe in the importance of good governance. But what if the ETF provider they had selected was using their shareholder rights to vote against governance issues. Would that be aligned with the investor’s values and objectives?

Looking beneath the surface

With most ETF providers now offering ESG solutions, it is important to look beyond the marketing to ensure investors achieve the maximum impact with their ESG allocation. For example, what are the asset manager’s voting and engagement policies? Do their voting records match their rhetoric… and investors’ core values?

Most managers now publish their policies and reporting transparently on their websites, but a third-party perspective is also valuable. One organisation that reports on the voting activity of the largest asset managers is ShareAction, their Voting Matters 2020 report looks specifically at the climate and social impact voting activity of 60 leading asset managers.

When it comes to the largest ETF issuers in Europe, we note a disparity in the approach to voting on climate and social issues (shown in the chart), underscoring the need for investors to ensure that the ETF they are buying is managed in a way that supports the overall investment objective.

Any experienced index manager should be able to track an ESG index, but a credible leader in ESG indexing will be able to go a step further and demonstrate the impact of their engagement and voting. Amundi has a comprehensive approach to shareholder advocacy, extending across both index and active investments and we are proud to have a strong and credible voting record.

To learn more about Amundi’s voting performance, read the article on the ShareAction Voting Matters report 2020.

Important information

The issuer of this document is Amundi.

This document is not intended as an offer or solicitation with respect to the purchase or sale of securities, including shares or units of funds. All views expressed and/or reference to companies cannot be construed as a recommendation by Amundi. Opinions and estimates may be changed without notice. To the extent permitted by applicable law, rules, codes and guidelines, Amundi and its related entities accept no liability whatsoever whether direct or indirect that may arise from the use of information contained in this document.

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