Index providers are now better-equipped to offer environmental, social and governance (ESG) solutions on the back of improved data and technology, according to Kernel Wealth founder, Dean Anderson.
“Investors can now achieve the same or better level of ESG integration in their portfolios via indexes for fees of just 20 basis points,” Anderson said. “ESG is not just for active managers.”
He said the quality of data available today might even give index providers the edge over active managers when implementing ESG factors.
Kernel recently toured NZ with representatives from both S&P Dow Jones Indices and parent company, S&P Global, showcasing three of its sustainability-themed funds based on the benchmark provider’s data – including one developed for the local share market – in addition to discussing broader ESG indexing topics.
Anderson said the roundtable events in Auckland, Wellington and Christchurch attracted more than 250 delegates in total, mostly financial advisers.
Figures cited by S&P show ESG-by-index was a growing investment trend last year with flows into exchange-traded funds (ETFs) labeled as such rising 53 per cent in 2021 to boost assets under management to US$2.7 trillion.
Michael Salvatico, S&P head of Asia-Pacific Middle East and Africa ESG solutions, told the Kernel crowds that the index provider had bolstered its sustainability credentials in recent years with the acquisitions of specialist carbon data firm Trucost and ESG ratings service SAM (from Dutch investment giant, Robeco).
Last year the group bundled its ESG resources under the ‘Sustainable 1’ brand, offering services that it says investment managers can use in various ways such as: generating outperformance; risk management; portfolio construction; engagement; reporting; and, screening.
Salvatico said the S&P Corporate Sustainability Assessment tool, for instance, taps into vast amounts of data across public and private sources.
“We show up to 1,000 data points per company – one fifth of which cannot be captured by public reporting alone,” he said.
With consumer and regulatory oversight ramping up on ESG claims, Salvatico said fund managers will turn to more sophisticated analytical tools.
For example, extensive ESG data and analytics might help managers defend against ‘greenwashing’ accusations – a pertinent subject in NZ given the regulator is currently cracking down on the local investment industry.
As at the end of March, Kernel has accrued about $20 million across its three ESG funds that invest in ‘green’ property, energy and NZ stocks, respectively.
The digital-only passive investment fund provider reported total funds under management of almost $280 million at March 31 – about half of which is in the global listed infrastructure strategy, one of 14 products now offered by Kernel.
Anderson said the new Kernel KiwiSaver scheme has already signed up “hundreds and hundreds” of members since it launched in April.
“We had more than 200 members after the first couple of weeks,” he said. “And we’ve just started our TV ad campaign.
Previously product manager for the NZX-owned ETF provider, Smartshares, Anderson founded Kernel in 2019 to offer low-cost passive funds direct to consumers and via advisory firms.