Charles Schwab Investment Management
Marie Chandoha, CEO of Charles Schwab Investment Management, explains why simplicity is the key for investors
- Charles Schwab Investment Management is one of the few major asset managers that doesn't offer an exchange-traded-fund with a strategy that incorporates environmental, social, and governance factors.
- BlackRock expects the market for ESG ETFs to grow from $25 billion today to more than $400 billion by 2028.
- Despite the projected growth, CSIM's CEO told Business Insider that products are challenging to design because investors don't agree on what ESG means.
Doing good is Wall Street's current hot strategy to pick up big dollars - but one of the biggest asset managers is intentionally staying away from the space, at least for now.
Firms that play in both public and private markets have launched myriad strategies that include environmental, social, and governance factors as investors, particularly women and millennials, seek more than just a financial return on their money. BlackRock, for example, launched a suite of sustainable investing-focused exchange-traded-funds in October. The firm anticipates huge growth in the space, forecasting that ESG-themed ETF assets will increase from $25 billion today to more than $400 billion by 2028.
But Charles Schwab Investment Management - the fifth largest ETF provider in the US - has not yet come out with an ESG ETF, Marie Chandoha, the firm's CEO, said in a recent interview with Business Insider.
It's not for lack of investor interest: In the businesses' weekly sales reports, Chandoha always hears demand for a fund.
"The thing in ESG is what's important to you may not be important to me," she said. "Designing something for a mass audience can be more challenging to pull off. We've been thinking about what that could look like, because if you design for the mass audience, people have to compromise on what that is. That's why some of these products gain some assets but not a lot, because they don't necessarily appeal to everyone's expectations."
There's no standard definition for ESG, so some funds focus on removing certain industries, like tobacco or oil, from a portfolio, while others track benchmarks like the MSCI ACWI Sustainable Impact Index.
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"Especially in dealing with a mass affluent client base, you have to find the product where you can get enough scale, especially for many millions of investors," Chadoha said. "With socially responsible investments, it's hard to pin down what would be a product that would meet a lot of people's needs in that kind of form."
Instead of an ETF, she said a custom separately-managed account may be more appropriate for the strategy. High net worth and institutional investors can design portfolios based on their preferred ESG factors, from climate change to diversity.
However, many of Schwab's mass affluent clients don't have the investment sizes to meet the thresholds for that kind of strategy. For that group, Chandoha said the business is still working on a product.