123 The Intended and Unforeseen Opportunities of ESG

What this episode covers

ESG has gathered a lot of steam as an essential and strategic investment component for both returns, with long term positive fundamentals, and risk management. Around roughly 1400 studies have found a positive relationship between ESG scores on the one hand and financial returns on the other, whether measured by equity returns or profitability or valuation multiples. Another factor is the cost of capital. Evidence suggests that a better ESG score translates to about a 10 percent lower cost of capital as the RISKS that affect your business, in terms of its ability to operate, are reduced if you have a strong ESG proposition. For these reasons, publicly traded companies that are actively implementing ESG in their operations are expected to be granted a valuation and risk premium as a result 'ESG goodwill,' versus those companies doing less. Samantha McDonald, Vice President, ESG Research and Engagement, and Jonathan Needham, Vice President & Director, Lead of ETF Distribution, at TD Asset Management Inc. (TDAM), join us to talk about the approach that TDAM is taking to ESG, as well as the suite of TD ESG ETFs. These ETFs invest in stocks and bonds that have strong ESG metrics and leverage exclusive Morningstar Indexes and research from Sustainalytics, a Morningstar® company and a globally recognized leader in ESG risk ratings and research. Highlights include: • How do you define your view on ESG? • How TDAM defines a gradual approach vs. a binary approach to ESG – Engagement vs. divestment? • How TDAM's shareholder engagement on behalf of investors' alignments works   • The Aha! moment for advisors • TDAM's ESG ETFs screening methodology - sector-neutral Morningstar Sustainability Indexes   • market-like exposure with significantly lower ESG risk, relative to benchmarks • Position sizing? Benchmark replacements. • Silver linings? – Taking advantage of tax-loss harvesting to increase pure beta ESG exposure. • How do Morningstar Sustainable Indexes navigate geo-political concerns? • Investors can now also get beta exposure to ESG corporate bond indexes highest quality, high liquidity investment grade corporate credits for yield • Building blocks, maximum diversification, low or no tracking error. • How do the screening rules work? Any interesting ones? • What is greenwashing? Where to find our guests: Samantha McDonald on Linkedin Jonathan Needham on Linkedin For more on TDAM ETFs, visit td.com/etfs