While many ESG investors use active stock selection, a passive or index-based approach is equally well-suited to ESG. Sustainable indices can be used to express a variety of different goals, including ESG integration, convictions on sustainability, or access to themes linked to the UN’s SDG framework, such as clean water or gender equality.
Passive investment strategies have democratised access to financial markets at low cost, features that are entirely consistent with a focus on ESG goals. And both passive and ESG investment approaches are data-driven. Indexing giant MSCI estimates that $180 billion was allocated to its ESG indices between 2014 and Q2 2019 – an amount that’s only likely to increase over time.
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