ETF Expert Corner

Linda Zhang on the Future of ESG Investing

July 10th, 2018 by ETF Store Staff

Linda Zhang, Founder of Purview Investments, discusses the importance of socially responsible investing and the future of ESG ETFs.


You can listen to our interview with Linda Zhang by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: We are now very pleased to be joined by Linda Zhang, Founder of Purview Investments. Linda has an extensive background in asset management and ETF research. She was most recently Head of Investment Research and Senior Portfolio Manager at Windhaven. She's been at Blackrock, State Street, among several other prominent firms. But in particular, she has spent a lot of time analyzing and researching ESG or socially responsible investing and ETFs, which is what we'll be focusing on today. Linda is joining us via phone from New York. Linda, our pleasure to have you on the program today.

Linda Zhang: Hi. Good morning, Nate.

Nate Geraci: Linda, since we haven't had you on the program before, maybe first just tell us a little bit about Purview Investments and also how you became so passionate around this topic of socially responsible investing?

Linda Zhang: Sure, Nate. Purview Investments is a very young firm. I've registered as, we registered as an independent asset manager. It's a registered investment advisor in New York, serving both individual and institutional clients. We launched Purview Impact Solutions at the beginning of this year. We hope to offer an alternative to the traditional global multi-asset strategies. We hope to provide a risk/return profile that's comparable to a global multi assets of 75/25 global equity and fixed income - yet, with much, much better impact on the environmental cleanliness and social fairness. We currently offer the strategy in separate managed accounts and with the custody at TD Institutional platform. As to how Purview got into, how I personally became interested in ESG, well, I'm a co-founder of Women in ETFs. Four years ago, five years ago, when I first entered into the ETF ecosystem, at the time, ESG investing just wasn't popular. It wasn't talked about, at least in the ETF space. Through my engagement with Women in ETFs, clearly I have been enlightened and been educated about gender diversity issues in Corporate America and corporations around the world. I've also become educated in the, not just social, but the environmental impact all of our investments could have. It’s just a matter of awareness. I personally, I grew up in China. It's a country that has gone through economic miracles, yet it's still fighting the pollution, and that has taken an economic costs and human tolls. I personally know many people who are affected by it, with lung cancers and other illness. So, I become personally interested in this issue of, can we simultaneously meet our investment objective, looking for better returns, yet at the same time looking for solutions that would also have a positive impact on the environmental cleanness and social fairness in terms of addressing gender issues.

Nate Geraci: Alright, Linda, so we're going to try to get into some depth here on ESG investing. As I look at the overall space, ESG ETFs, in particular, have been a bit slow to catch on so far. At least, just in terms of sheer assets. I have a few theories as to why that may be the case. If you don't mind, I'd love to run these by you and hear your thoughts.

Linda Zhang: Sure.

Nate Geraci: So the first is, I just feel like in today's world, people simply expect companies to do the right things and if they don't, people are going to hit companies in the pocket book, right? They'll obviously avoid their products and services. They may protest companies, disparage them on social media. So, my theory is that people believe this has a much greater impact than perhaps avoiding some small percentage of a company’s stock in their IRAs. What are your thoughts on that?

Linda Zhang: Yeah. So, what you described, it actually has happened a long time ago, right? It was actually led by institutional investors in the context of Social SRI, Socially Responsible Investing. It first started protesting about companies that work in South Africa, right? Then later on, it has become more popular against companies who are heavy polluters. So, I think all those are good. I would call that framework, exclusion framework, right? Don't invest in companies that engage in pollutions or so-called sin industries. Now, I think that could be effective. But, I think for the majority of Americans who are perhaps, silent majority I would say, who are conscious about many, many issues - in particular environmental issues - who may not feel propelled to protest - ESG investing really offers a way to encourage companies to do the right things. So, that's why I think ESG investing really provides a vehicle for investors that you could influence corporate policies without having to raise the flag and go to protest. You may achieve a similar effect.

Nate Geraci: Okay, so another theory that I have on why ESG ETFs have been a bit slow to catch on is just that I think it's tough for investors to sort of get their heads around ESG because there's no one-size-fits-all approach, right? For example, a company might have a spectacular track record on gender diversity, let's say, but maybe they have a poor environmental track record and investors want both. Or, maybe a company is great on the environment, but they're involved in some sort of a business investors don't agree with. I just think it's difficult for investors to find companies doing everything that they want. So from your perspective, how do investors attempt to reconcile that?

Linda Zhang: That's right. So, it is true. It's very hard to find one ETF that covers all of it, right? So, the approach that Purview does, you really have to build a foundation of your portfolio. So, the way we do it is, we look at all the self-labeled ESG ETFs out there. So, they tend to operate based on the exclusion method, right? So, you need those as building blocks to give you exposure to major asset classes. Then on top of that, and we also believe in, you have to use so-called impact ETFs, right? That represents your values greatly. So, in our case, I'll give you example of a couple of impact ETFs that we use. One is green bond ETFs, GRNB, it's VanEck. So these are, you would invest in bonds that are issued by corporations or investment banks, who use the proceeds to finance green and sustainable projects, right? So for example, City Government of Mexico, they issued green bonds to build a sustainable airport, right? Another example of impact ETFs, is SHE, issued by a SPDR, right? Issued by State Street SPDR. So that's a group of companies that have the most progressive policies in terms of addressing the gender gap in corporate America. So you have to use a group of products to achieve what you want to achieve.

Nate Geraci: Linda, can you maybe expand a little bit more on how you view the difference between impact ETFs and more broad ESG or socially responsible ETFs?

Linda Zhang: Yeah. So, ESG ETFs, I see that as a first generation of ESG ETF products, which is based on the premise of many index provider uses such as my CI Sustainalytics, right? They basically, they would kick companies out if they don't satisfy certain criteria along the environmental, social, and governance principals. So that's based on exclusion principles. Impact ETFs, they are a newer generation of ESG ETF products. They tend to have more focused objectives, right? It could be green, some of the clean energy ETFs, even though there are not self-labeled as ESG ETFs, it's not intended yet its impact is ESG. So, they would also be falling into the category of impact ETF.

Nate Geraci: Our guest is Linda Zhang, Founder of Purview Investments. Linda, going back to Purview Investments and your ESG ETF portfolios, what's your take on the current ETF options available in the ESG space? Do you feel like you have all the necessary tools in the toolbox to accomplish what you want? Do you feel like you have the right tools?

Linda Zhang: Yeah. You know, if this were two years ago, we had this conversation two years ago, I would say no because the majority of the ESG ETFs that I follow - I think there are over 40 of them right now, self-labeled ESG ETFs - the majority of them, 80% of them actually, are less than two years old, right? So, now we do have a wide range of ESG ETFs that covers almost every single major asset class. People have been saying that ESG ETFs is slow, is pretty slow. But I would say they are small, they're small to begin with. Last year, when I first really did a comprehensive study, the AUM is only about 3.1 billion. But, if you look at it a year later, right now, as of the end of June, the AUM under this group has reached over 5 billion. So, we're talking about a year-over-year growth rate of 67%. And, another change is there are more players coming to the space. Recently, we have heard two prominent ETF issuers that just made an announcement or they already launched. One is Goldman, in conjunction with Tudor. They launched JUST and they immediately raised $250 million, either raised or with the seed money of $250 million. That put them into the fourth largest ESG ETF issuers. Vanguard just made an announcement that they are going to enter into ESG ETFs next month. I think that's going to put a fierce competition to this emerging space. Currently, there are three leaders. iShares takes about 60% of ESG ETFs. Their leadership has slid down from 67 last year, to 60, because of the competition. We have a distance second place, which is State Street SPDR. In third place, is Nuveen Nushares, who has come out with a suite of equity and fixed income ETFs for us allocators, like Purview.

Nate Geraci: Linda, what about performance in the ESG space? I think at the end of the day, investors obviously do want performance, even if they're still expressing their social views. I think there's a lot of debate over whether or not investors may be sacrificing something in terms of performance to invest in a socially responsible manner. Do you have any data, or anything anecdotal, that you can point to regarding performance around ESG?

Linda Zhang: Sure. I started my career as quant analyst, right? So, data needs to make sense to me before I'm convinced. I actually have done a lot of study in this area. Let me say the performance, when somebody compares ESG products and that of a traditional one, the discussion is often misguided. There are two major issues. One is time horizon. At any given period of time, an ESG product may underperform or outperform a comparable traditional one. Second issue is benchmark. Some people would compare, let's say a clean energy ETF product with a broad market index. That's clearly apples, oranges, right? So, I think those are the two issues people need to be very careful, when you compare ESG and traditional products. I look at, of all the major asset classes, you can find ESG products with comparable risk/return, yet with much, much better, let's say a positive environmental impact. I'll give you an example. Within US equities, most of us hold SPY, right? State Street SPY? That product has a carbon footprint of 200 units based on US measurement. A similar product, SPYX, by State Street, it has very similar risk and return in the last two years, I estimated myself, yet the carbon footprint is dropped to 100, 150. Similarly, in emerging equities, the difference is even bigger. So, iShares EEM is popular, one of the largest emerging market ETFs. That has a carbon footprint of 320. Its ESG version, ESGD, that reduced carbon footprint to 230, with very, very similar risk and return. That's not only limited to equities. In fixed income. BND, Vanguard's BND, that's the standard fixed income ETF. That has a carbon footprint of 340. But, Nuveen's comparable product, but ESG version, NUBD, that reduces carbon footprint to 224. You look at the risk/return, they're very, very comparable. So, you have to ask yourself, in today's portfolio management, just looking at risk and return is not enough, right? Can you, for every single product with comparable risk/return, can you find a better product? Better in the sense of environmental, and social, and governance impact. If you can, why not use that?

Nate Geraci: So Linda, we have just a few minutes left. If you were to perhaps provide an outlook looking forward here, where do you expect ESG ETFs to be one year from now, five years from now, 10 years from now?

Linda Zhang: I think ESG investing is going to become part of the mainstream investing. I should say mainstream investing, it has to include ESG. So, every advisor out there, every individual, as well as institutional investors, you have to start looking at having ESG as part of your portfolio. It's not just because it makes you feel good, right? It also, it does have benefits that we never had an instrument to measure before. Thanks to the index companies, now we do. There's also regulatory changes. The Europeans again, are leading in this effort. Just last month, the European Commission has made a proposal that requires every institutional asset owners and asset managers, you have to demonstrate the ESG process, how you incorporate that into investment process, if you ever claim that your product or your strategy is along the line of ESG investing. I think this will come to the US as well.

Nate Geraci: Linda, two minutes left before we let you go. You mentioned earlier that you co-founded Women in ETFs.

Linda Zhang: Yes.

Nate Geraci: Can you just tell our listeners a little bit more about that organization and what the overall mission is?

Linda Zhang: Sure. Women in ETFs, it was an organization, a nonprofit association for people, men and women, I should say, in the ETF industry. Five years, four years ago, five of us co-founders, we put our heads together and we started as a social thing for connecting other women and men in the industry. Before you know it, the membership has grown to 4,000 globally. 500 of that are actually male. The membership is free and we have 27 plus corporate sponsorships. We have free local events, as well as our national events, two key national events. One of them is a breakfast at Inside ETFs in January. The other one is a bell ringing, a global bell ringing on the stock exchanges every March to celebrate International Women's Day. We also have mentorship programs. We have marketing. We have events, committees. I highly suggest every one of you who is either using ETFs or considering using ETFs to check us out at Try to become a member, become a mentor, and become a supporter, either financially or mentally.

Nate Geraci: Well Linda, with that, we'll have to leave it there. Just an absolute pleasure visiting today. Thank you very much for your time.

Linda Zhang: Thank you.

Nate Geraci: That was Linda Zhang, Founder of Purview Investments and if you would like to learn more about their approach to ESG investing, you can do so by visiting