Linda Zhang – Purview Investments
The Benefits of ESG Investing
Linda Zhang is the CEO at Purview Investments. She specializes in ETF managed solutions, ESG/Impact Investing, ETF research and execution. We recently spoke with Linda, who will be speaking at our ETF Strategy Summit (Oct. 15 – 16 – Dallas), as she shared her thoughts on ESG investing.
ETF Strategy Summit: Recent research has muddied the debate as to whether ESG adds positive or negative alpha to a portfolio – how do you think about this issue?
Linda Zhang: The comparison of ESG investing and traditional investing is often misguided. First, the time horizon issue. At any given period, one may have performance better or worse than the other. Second, the benchmark issue. A clean energy ESG product might be compared with the broad market index. Third, the measurement issue. The benefits of environmental cleanness and social fairness are not counted, as these benefits are often not measurable in financial return terms.
The view, that ESG is just another alpha generation tool, is not complete. ESG investing brings multiple benefits, beyond financial returns. Purview sees positive impact from ESG investing as the third dimension of modern finance – Return, Risk and Impact. Together, they lift and expand the traditional 2D efficient frontier line (return/risk) to a new 3D efficient surface (return/risk/impact). Investors have choices to choose a portfolio on the efficient surface that best combines the dual investment objectives of return and impact, subject to the risk tolerance.
ETF Strategy Summit: While indexes based on ESG scoring are maturing, is this still a space best accessed via active management?
Linda Zhang: Several companies have become leaders in the ESG scoring business. ESG measurement systems have become more accepted and better understood in the investment community. This is a healthy development for both index-based products and actively managed products. Active managers are better equipped with more research tools and data to more informed decisions.
ETF Strategy Summit: Two groups are often associated with ESG investing: Women and millennials – should the industry be proactive about diversifying the ranks of ESG investors with more men and members of other generational groups?
Linda Zhang: A few survey based studies have pointed out women and millennials tend to be open to ESG investing. However, it would be a mistake to assume that ESG investing should only serve women and younger investors. Education is the key to help investors better understand the reasons for ESG investing. The investment community needs to do a better job reaching out to a broad audience by gender, age, geographical and social economic scopes.
ETF Strategy Summit: How do you think ESG investors should approach digital privacy issues faced by companies like Google, Amazon and Facebook?
Linda Zhang: Digital privacy is a corporate governance issue, it’s a business ethics issue. Investors need to follow whether these companies have a comprehensive and sound corporate governance policies regarding digital privacy. Do these companies follow local and global standards? Do they abide by the regulations regarding digital privacy? The recently implemented GDPR in the European Union sets the standards for company practices regarding digital privacy. If ESG investors find that some companies do not meet the investor’s criteria on corporate governance, they should exclude these firms.
ETF Strategy Summit: Can the ETF structure allow managers and investors to more precisely target ESG outcomes?
Linda Zhang: ETF structure is index based. Index providers can design a specific index to target the desired impact along environmental, social and governance principles.
ETF Strategy Summit: Thanks Linda. We look forward to hearing more of your thoughts at the ETF Strategy Summit October 15 – 16 in Dallas.