Responsible Governance Equity

Responsible Governance Equity Funds and ETFs have a mandate to invest in... Responsible Governance Equity Funds and ETFs have a mandate to invest in securities that score high on governance factors. Governance factors can include the level of board oversight over management, whether sufficient controls are in place to prevent fraud, and whether a company has a history of violating laws or regulations. Companies found to have engaged in bribery, for example, would score very poorly on responsible governance tests. Governance is seen as both an issue of ethics but also one of financial sustainability. It’s an ethical issue when a firm continuously breaks the law or even violates its own code of conduct. And it’s an issue of financial sustainability because it can put shareholders at risk. A company that is found liable for anti-competitive behavior, for example, may have to pay huge fines or could even face being broken up. Likewise, a company accused of bribery may not be allowed to bid for government contracts. Gaps in responsible governance can in some cases lead a company to bankruptcy. Governance factors can be used as either a positive or negative screen. A positive screen rewards companies that are actively scoring high on these metrics, while a negative one looks to automatically weed out from a portfolio companies in certain industries with a history of bad practices. It is important to note that Responsible Governance Equity Funds and ETFs can be controversial. Some investors maintain a governance lens is good investing, while others point to data showing underperformance by funds that use governance analysis as a key input into their investment decisions. Last Updated: 12/04/2024 View more View less

Responsible Governance Equity Funds and ETFs have a mandate to invest in securities that score high on governance factors. Governance factors can include the level of board oversight over management, whether sufficient controls... Responsible Governance Equity Funds and ETFs have a mandate to invest in securities that score high on governance factors. Governance factors can include the level of board oversight over management, whether sufficient controls are in place to prevent fraud, and whether a company has a history of violating laws or regulations. Companies found to have engaged in bribery, for example, would score very poorly on responsible governance tests. Governance is seen as both an issue of ethics but also one of financial sustainability. It’s an ethical issue when a firm continuously breaks the law or even violates its own code of conduct. And it’s an issue of financial sustainability because it can put shareholders at risk. A company that is found liable for anti-competitive behavior, for example, may have to pay huge fines or could even face being broken up. Likewise, a company accused of bribery may not be allowed to bid for government contracts. Gaps in responsible governance can in some cases lead a company to bankruptcy. Governance factors can be used as either a positive or negative screen. A positive screen rewards companies that are actively scoring high on these metrics, while a negative one looks to automatically weed out from a portfolio companies in certain industries with a history of bad practices. It is important to note that Responsible Governance Equity Funds and ETFs can be controversial. Some investors maintain a governance lens is good investing, while others point to data showing underperformance by funds that use governance analysis as a key input into their investment decisions. Last Updated: 12/04/2024 View more View less