FA Talks is an interview series where industry thinkers share their thoughts and perspectives on a variety of market trends and themes impacting indexing.
Glenn Ambach of Efficient Market Advisors (EMA) discusses why EMA was one of the first agencies to launch ESG versions of its strategies in 2018.
Efficient Market Advisors (EMA) is a pure ETF strategist firm dedicated to providing balanced asset allocation strategies using ETFs. EMA was founded in 2004, giving it one of the longest track records in the industry. In 2017, EMA was purchased by Cantor Fitzgerald and now operates as a business within the firm’s asset management unit, Cantor Fitzgerald Investment Advisors. The firm launched ESG versions of its strategies in 2018, making it one of the first agencies to do so.
S&P DJI: Why launch ESG strategies back in 2018 before they had more mainstream adoption?
Glenn: As an asset manager, one of the most appealing aspects of incorporating ESG is that it differentiates our firm as well as the advisors that utilize our strategies. It also presents the opportunity to be a leader both within the industry, as ESG is adopted more and more, and with clients who are increasingly demanding investment firms incorporate ESG considerations.
In terms of demand for ESG investing, we have seen a big shift toward incorporating ESG investing at the institutional level. We have also seen large inflows into ESG funds at the retail level. Historically at the retail level, demand was most often associated with women and millennials. For example, according to a 2017 report from the Morgan Stanley Institute for Sustainable Investing, 84% of women and 86% of millennials were interested in ESG investing. However, since launching our strategies, we have seen an increase in interest across all demographics, and I think ESG investing is something that appeals to a wider audience of investors. For example, we now have a nearly equal amount of women and men who choose our ESG strategies, with a distribution of clients across all age groups—in fact, most are over 40 years of age, indicating strong interest among older generations.
From a portfolio perspective, there has been growing evidence of the potential for the financial benefits of incorporating ESG analysis. Research has shown companies that score high in ESG factors had reduced costs, increased efficiency, lower risk of fines, and lower cost of capital, which may contribute to improved corporate financial and investment performance.