Q.1 Compare and contrast several theoretical frameworks that are applied to the corporate governance discipline.
There are many theories of corporate governance which
addressed the challenges of governance of firms and companies from time to
time. The Corporate Governance is the process of decision
making and the process by which decisions are implemented in large businesses
is known as Corporate Governance. There are various theories which describe the
relationship between various stakeholders of the business while carrying out
the activity of the business.
Theories of Corporate Governance
We will discuss the following theories of corporate
governance:
- Agency
Theory
- Stewardship
Theory
- Resource
Dependency Theory
- Stakeholder
Theory
- Transaction
Cost Theory
- Political
Theory
Agency Theory
Agency theory defines the relationship between the
principals (such as shareholders of company) and agents (such as directors of
company). According to this theory, the principals of the company hire the
agents to perform work. The principals delegate the work of running the
business to the directors or managers, who are agents of shareholders. The
shareholders expect the agents to act and make decisions in the best interest
of principal. On the contrary, it is not necessary that agent make decisions in
the best interests of the principals. The agent may be succumbed to
self-interest, opportunistic behavior and fall short of expectations of the
principal. The key feature of agency theory is separation of ownership and
control. The theory prescribes that people or employees are held accountable in
their tasks and responsibilities. Rewards and Punishments can be used to correct
the priorities of agents.
Stewardship Theory
The steward theory states that a steward protects and
maximises shareholders wealth through firm Performance. Stewards are company
executives and managers working for the shareholders, protects and make profits
for the shareholders. The stewards are satisfied and motivated when
organizational success is attained. It stresses on the position of employees or
executives to act more autonomously so that the shareholders’ returns are
maximized. The employees take ownership of their jobs and work at them
diligently.
Stakeholder Theory
Stakeholder theory incorporated the accountability of
management to a broad range of stakeholders. It states that managers in
organizations have a network of relationships to serve – this includes the
suppliers, employees and business partners. The theory focuses on managerial
decision making and interests of all stakeholders have intrinsic value, and no
sets of interests is assumed to dominate the others
Resource Dependency Theory
The Resource Dependency Theory focuses on the role of
board directors in providing access to resources needed by the firm. It states
that directors play an important role in providing or securing essential
resources to an organization through their linkages to the external
environment. The provision of resources enhances organizational functioning,
firm’s performance and its survival. The directors bring resources to the firm,
such as information, skills, access to key constituents such as suppliers,
buyers, public policy makers, social groups as well as legitimacy. Directors
can be classified into four categories of insiders, business experts, support
specialists and community influentials.
Transaction Cost Theory
Transaction cost theory states that a company has
number of contracts within the company itself or with market through which it
creates value for the company. There is cost associated with each contract with
external party; such cost is called transaction cost. If transaction cost of
using the market is higher, the company would undertake that transaction
itself.
Political Theory
Political theory brings the approach of developing
voting support from shareholders, rather by purchasing voting power. It
highlights the allocation of corporate power, profits and privileges are determined
via the governments’ favor
Q. 2 To what extent has the empirical research been
useful in providing clarity. regarding the structure of the board of directors
and the firm's financial performance?
Empirical research is defined as any research where
conclusions of the study is strictly drawn from concretely empirical evidence,
and therefore “verifiable” evidence.
For example: A research is being conducted to find out
if listening to happy music while working may promote creativity? An experiment
is conducted by using a music website survey on a set of audience who
are exposed to happy music and another set who are not listening to music at
all, and the subjects are then observed. The results derived from such a
research will give empirical evidence if it does promote creativity or not.
Empirical research: Origin
You must have heard the quote” I will not believe it
unless I see it”. This came from the ancient empiricists, a fundamental
understanding that powered the emergence of medieval science during the
renaissance period and laid the foundation of modern science, as we know it
today. The word itself has its roots in greek. It is derived from the greek
word empeirikos which means “experienced”.
In today’s world, the word empirical refers
to collection of data using evidence that is collected through
observation or experience or by using calibrated scientific instruments. All of
the above origins have one thing in common which is dependence of observation
and experiments to collect data and test them to come up with conclusions.
Types and methodologies of empirical research
Empirical research can be conducted and analysed using
qualitative or quantitative methods.
- Quantitative
research: Quantitative research
methods are used to gather information through numerical data. It is
used to quantify opinions, behaviors or other defined variables.
These are predetermined and are in a more structured format. Some of the
commonly used methods are survey, longitudinal studies, polls, etc
- Qualitative
research: Qualitative research
methods are used to gather non numerical data. It is used to
find meanings, opinions, or the underlying reasons from its subjects.
These methods are unstructured or semi structured. The sample size for
such a research is usually small and it is a conversational type of method
to provide more insight or in-depth information about the problem Some of
the most popular forms of methods are focus groups, experiments,
interviews, etc.
Data collected from these will need to be analysed.
Empirical evidence can also be analysed either quantitatively or qualitatively.
Using this, the researcher can answer empirical questions which have to be
clearly defined and answerable with the findings he has got. The type
of research design used will vary depending on the field in which it
is going to be used. Many of them might choose to do a collective research
involving quantitative and qualitative method to better answer questions which
cannot be studied in a laboratory setting.
Quantitative research methods
Quantitative research methods aid in analyzing
the empirical evidence gathered. By using these a researcher can find out if
his hypothesis is supported or not.
- Survey
research: Survey research generally
involves a large audience to collect a large amount of data. This is a
quantitative method having a predetermined set of closed questions which
are pretty easy to answer. Because of the simplicity of such a
method, high responses are achieved. It is one of the most
commonly used methods for all kinds of research in today’s world.
Previously, surveys were taken face to face
only with maybe a recorder. However, with advancement in technology and for
ease, new mediums such as emails, or social media have emerged.
For example: Depletion of energy resources is a
growing concern and hence there is a need for awareness about renewable energy.
According to recent studies, fossil fuels still account for around 80% of
energy consumption in the United States. Even though there is a rise in the use
of green energy every year, there are certain parameters because of which the
general population is still not opting for green energy. In order to understand
why, a survey can be conducted to gather opinions of the general population
about green energy and the factors that influence their choice of switching to
renewable energy. Such a survey can help institutions or governing bodies to
promote appropriate awareness and incentive schemes to push the use of greener
energy.
- Experimental
research: In experimental research,
an experiment is set up and a hypothesis is tested by creating a situation
in which one of the variable is manipulated. This is also used
to check cause and effect. It is tested to see what happens to the
independent variable if the other one is removed or altered. The process
for such a method is usually proposing a hypothesis, experimenting on it,
analyzing the findings and reporting the findings to understand if it
supports the theory or not.
For example: A particular product company is trying to
find what is the reason for them to not be able to capture the market. So the
organisation makes changes in each one of the processes like manufacturing,
marketing, sales and operations. Through the experiment they understand that
sales training directly impacts the market coverage for their product. If the
person is trained well, then the product will have better coverage.
- Correlational
research: Correlational research is
used to find relation between two set of variables. Regression is
generally used to predict outcomes of such a method. It can be positive,
negative or neutral correlation.
For example: Higher educated individuals will get higher
paying jobs. This means higher education enables the individual to high paying
job and less education will lead to lower paying jobs.
- Longitudinal
study: Longitudinal study is used
to understand the traits or behavior of a subject under observation after
repeatedly testing the subject over a period of time. Data collected from
such a method can be qualitative or quantitative in nature.
For example: A research to find out benefits of
exercise. The target is asked to exercise everyday for a particular period of
time and the results show higher endurance, stamina, and muscle growth. This
supports the fact that exercise benefits an individual body.
- Cross
sectional: Cross sectional study is
an observational type of method, in which a set of audience is observed at
a given point in time. In this type, the set of people are chosen in a
fashion which depicts similarity in all the variables except the one which
is being researched. This type does not enable the researcher to establish
a cause and effect relationship as it is not observed for a continuous
time period. It is majorly used by healthcare sector or the retail
industry.
For example: A medical study to find the prevalence of
under-nutrition disorders in kids of a given population. This will involve
looking at a wide range of parameters like age, ethnicity, location, incomes
and social backgrounds. If a significant number of kids coming from poor
families show under-nutrition disorders, the researcher can further investigate
into it. Usually a cross sectional study is followed by a longitudinal study to
find out the exact reason.
- Causal-Comparative
research: This method is based on
comparison. It is mainly used to find out cause-effect relationship
between two variables or even multiple variables.
For example: A researcher measured the productivity of
employees in a company which gave breaks to the employees during work and
compared that to the employees of the company which did not give breaks at all.
Qualitative research methods
Some research questions need to be analysed
qualitatively, as quantitative methods are not applicable there. In many cases,
in-depth information is needed or a researcher may need to observe a target
audience behavior, hence the results needed are in a descriptive form.
Qualitative research results will be descriptive rather than predictive. It
enables the researcher to build or support theories for future potential
quantitative research. In such a situation qualitative research
methods are used to derive a conclusion to support the theory or
hypothesis being studied.
- Case
study: Case study method is used to
find more information through carefully analyzing existing cases. It is
very often used for business research or to gather empirical evidence for
investigation purpose. It is a method to investigate a problem within its
real life context through existing cases. The researcher has to carefully
analyse making sure the parameter and variables in the existing case are
the same as to the case that is being investigated. Using the findings
from the case study, conclusions can be drawn regarding the topic that is
being studied.
For example: A report mentioning the solution provided
by a company to its client. The challenges they faced during initiation and
deployment, the findings of the case and solutions they offered for the
problems. Such case studies are used by most companies as it forms an empirical
evidence for the company to promote in order to get more business.
- Observational
method: Observational
method is a process to observe and gather data from its target. Since
it is a qualitative method it is time consuming and very personal. It can
be said that observational method is a part of ethnographic research which
is also used to gather empirical evidence. This is usually a qualitative
form of research, however in some cases it can be quantitative as well
depending on what is being studied.
For example: setting up a research to observe a
particular animal in the rain-forests of amazon. Such a research usually take a
lot of time as observation has to be done for a set amount of time to study
patterns or behavior of the subject. Another example used widely nowadays is to
observe people shopping in a mall to figure out buying behavior of consumers.
- One-on-one
interview: Such a method is purely
qualitative and one of the most widely used. The reason being it enables a
researcher get precise meaningful data if the right questions are asked.
It is a conversational method where in-depth data can be gathered
depending on where the conversation leads.
For example: A one-on-one interview with the finance
minister to gather data on financial policies of the country and its
implications on the public.
- Focus
groups: Focus groups are used when
a researcher wants to find answers to why, what and how questions. A small
group is generally chosen for such a method and it is not necessary to
interact with the group in person. A moderator is generally needed in case
the group is being addressed in person. This is widely used by product
companies to collect data about their brands and the product.
For example: A mobile phone manufacturer wanting to
have a feedback on the dimensions of one of their models which is yet to be
launched. Such studies help the company meet the demand of the customer and
position their model appropriately in the market.
- Text
analysis: Text analysis method is a
little new compared to the other types. Such a method is used to analyse
social life by going through images or words used by the individual. In
today’s world, with social media playing a major part of everyone’s life,
such a method enables the research to follow the pattern that relates to
his study.
For example: A lot of companies ask for feedback from
the customer in detail mentioning how satisfied are they with their customer
support team. Such data enables the researcher to take appropriate decisions to
make their support team better.
Sometimes a combination of the methods is also needed
for some questions that cannot be answered using only one type of method
especially when a researcher needs to gain a complete understanding of complex
subject matter.
Q.3 Discuss the complex web of ownership that arises
from institutional investment.
Because institutions such as mutual
funds, pension funds, hedge funds, and private equity firms have
large sums of money at their disposal, their involvement in most stocks is
usually welcomed with open arms. Often their vocally expressed interests are
aligned with those of smaller shareholders. However, institutional involvement
isn't always a good thing—especially when the institutions are selling.
As part of the research process, individual investors
should peruse SEC Form 13-D filings (available at the Security
and Exchange Commission's website) and other sources, to see the size of institutional holdings in
a firm, along with recent purchases and sales.1 Read on for some of the
pros and cons that go along with institutional ownership, and
which retail investors should be aware of.
- Organizations
that control a lot of money—mutual funds, pension funds, or insurance
companies—which buying securities are referred to as institutional
investors.
- These
financial institutions own shares on behalf of their clients and are
generally believed to be a major force behind supply and demand in the
market.
- Whether
large degrees of institutional ownership in a stock is positive or
negative remains a matter of debate. Here, we take a closer look at the
implications of institutional investing.
Smart Money of Institutional Ownership
One of the primary benefits of institutional ownership
of securities is their involvement is seen as being "smart
money." Portfolio managers often have teams of analysts at their
disposal, as well as access to a host of corporate and market data most retail
investors could only dream of. They use these resources to perform an in-depth
analysis of opportunities.
Does this guarantee that they'll make money in the
stock? Certainly not, but it does greatly enhance the probability that they
will book a profit. It also puts them into a potentially
more advantageous position than that of most individual
investors.
Institutions and the Sell Side
After some institutions (e.g., mutual funds and
hedge funds) establish a position in a stock, their next move is to tout the
company's merits to the sell side. Why? The answer is to drive interest in
the stock and to boost share price value.
In fact, that's why you see top-notch portfolio
and hedge fund managers touting stocks on television, radio, or at
investment conferences. Sure, finance professionals like to educate people, but
they also like to make money, and they can do that by marketing their
positions, much like a retailer would advertise its merchandise.
Once an institutional investor establishes a
large position, its next motive is typically to find ways to drive up its
value. In short, investors who get in at or near the beginning of the
institutional investor's buying process stand to make a lot of money.
Institutions as Citizen Shareholders
Institutional turnover in most stocks is
quite low. That's because it takes a great deal of time and money to research a
company and to build a position in it. When funds do accumulate large
positions, they do their utmost to ensure those investments don't go awry.
To that end, they'll often maintain a dialogue with the company's board of
directors and seek to acquire stocks that other firms might want to sell
before they hit the open market.
While hedge funds have received the lion's share of
attention, when it comes to being considered "activist," many mutual
funds have also ramped up the pressure on boards of directors. For
example, Olstein Financial generated a lot of press, particularly in late 2005
and early 2006, for peppering several companies, including Jo-Ann Stores, with
a host of suggestions for driving shareholder value, like suggesting
the hiring of a new CEO.
The lesson that individual investors need to learn
here is that there are instances when institutions and management teams can and
do work together to enhance common shareholder value.
The Scrutiny of Institutional Ownership
Investors should understand that although mutual funds
are supposed to focus their efforts on building their clients' assets over the
long haul, individual portfolio managers are frequently evaluated on their
performance on a quarterly basis. This is because of the growing
trend to benchmark funds (and their returns) against those of major
market indexes, such as the S&P 500.
This process of evaluation is quite fraught, as a
portfolio manager who has experienced a bad quarter might feel pressured
to dump underperforming positions (and buy into companies that have
trading momentum) in the hope of achieving parity with the major
indexes in the following quarter. This can lead to increased trading costs,
taxable situations, and the likelihood that the fund is selling at least some
of these stocks at an inopportune time.
Hedge funds are notorious for placing quarterly
demands on their managers and traders. Although this is due less to
benchmarking and more to the fact that many hedge fund managers get to keep 20%
of the profits they generate, the pressure on these managers and the resulting
fickleness can lead to extreme volatility in certain stocks; it can also hurt
the individual investor who happens to be on the wrong side of a given trade.
Pressures of Institutional Owner Selling
Because institutional investors can own hundreds of
thousands, or even millions, of shares, when an institution decides to
sell, the stock will often sell off, which impacts many individual shareholders.
Case in point: When well-known activist shareholder
Carl Icahn sold off a position in Mylan Labs in 2004, its shares shed nearly 5%
of the value on the day of the sale as the market worked to absorb the shares.
Of course, it's hardly possible to assign the total
volume of a stock's decline to sales by institutional investors. The
timing of sales and concurrent declines in corresponding share prices
should leave investors with the understanding that large institutional selling
does not help a stock go up. Due to the access and expertise enjoyed by these
institutions—remember, they all have analysts working for them—the sales are
often a harbinger of things to come.
The big lesson here is that institutional selling can
send a stock into a downdraft regardless of the underlying fundamentals of the
company.
Proxy Fights Injure Individual Investors
As mentioned above, institutional activists will
typically purchase large quantities of shares and then use their equity
ownership as leverage, allowing them to obtain a board seat and
enforce their agendas. However, while such a coup can be a boon for
the common shareholder, the unfortunate fact is that many proxy
fights are typically drawn-out processes that can be bad both for the
underlying stock and for the individual shareholder invested in it.
Take, for example, what happened at The Topps Company
in 2005. Two hedge funds, Pembridge Capital Management and Crescendo Partners,
each with a position in the stock, tried to force a vote on a new slate of
directors.4 Although the battle was eventually settled, the common
stock lost some 12% of its value during the three months of back and forth
between the parties.
Again, while the full blame of the decline in the
share price can't be placed on this one incident, these events don't help share
prices move up because they create bad press and typically force executives to
focus on the battle instead of the company.
Investors should be aware that although a fund may get
involved in a stock with the intention of ultimately doing something good, the
road ahead can be difficult and the share price can, and often does, wane until
the outcome becomes more certain.
Individual investors should not only know which firms
have an ownership position in a given stock; they should also be able to
gauge the potential for other firms to acquire shares while understanding the
reasons for which a current owner might liquidate its position.
Institutional owners have the power to both create and destroy value for
individual investors. As a result, it is important that investors keep tabs on
and react to the moves the biggest players in a given stock are making.
Q. 4 Explain and appreciate the importance of the
audit function in relation to corporate governance.
Effective corporate governance and internal audit are
vital to one another. The Institute of Internal Auditors (IIA) recently
released their position paper on ‘Internal Auditing’s Role in Corporate
Governance’ in which they stated: ‘A vibrant and agile internal audit
function can be an indispensable resource supporting sound corporate
governance.’
Corporate governance is the oversight of a company’s
policies, procedures and practices usually handled by the board of directors.
In our previous blog, we explained how routine internal audits can improve
a company’s corporate governance. But what part specifically does internal
audit play? And how does a strong relationship between the two benefit your
company?
The role of internal audit in corporate governance
An internal audit can provide a fair and accurate
review of governance processes, risk management and internal controls. As the
third line of defence for a business, internal audit equips the board with a
holistic view of governance structures and how well they are working within the
company.
As professional insight into procedures and a catalyst
for managers, audits can be effective when prompting change, improvements, and
innovation within an organisation. By highlighting key areas of weakness and
developing risks, an internal audit can identify and foresee emerging trends
and challenges, keeping companies one step ahead and ready to act as soon as a
crisis occurs.
The focus of an audit can be based on the
organisation’s needs and issues, as they are designed to provide assurance on
the procedures in place to manage governance structures. An audit’s scope could
include, but is not limited to:
- Board
composition (skills, training, support)
- Information
on meetings (minutes, attendance, topics)
- The
input of stakeholders and the usefulness of their feedback
- The
effectiveness of communication within the organisation, from top to bottom
- Any
conflicts of interests
- Monitoring
of risks and controls
- Tone
at the top and the dynamic of the company
Poor corporate governance has led to the reputational
damage of many high-profile organisations. Take for example Patisserie Valerie.
The company failed to train and develop board member staff which eventually
lead to the reputation of the executive chairman being severely damaged
following a string of mistakes.
As the risks companies are facing continue to grow,
businesses must ensure they continue to follow best practices to effectively
mitigate them, including a risk-based approach to auditing. The IIA have
named a number of risks that may be of concern for business, these include ‘new
technologies, geopolitics, cyber security, and disruptive innovation’.
A risk-based approach to internal audits can
strengthen an organisation’s corporate governance, providing assurance and insights
on the processes and structures in place that ensure the company can succeed.
Now that you have a greater understanding of the link
between corporate governance and internal audit, download our white
paper, ‘Level Up: Risk-Based Auditing’ to find out how your company
can establish a continuous risk-based audit execution process and improve your
internal audit maturity.
Internal auditing is an important function of any
information security and compliance program and is a valuable tool for
effectively and appropriately managing risk. Are we ensuring we are doing what
we say we’re doing? Are there gaps in our policies and procedures? Are there
any areas for improvement? Are we meeting our compliance goals? These important
questions are addressed through internal auditing.
The Role of Internal Audits
“The role of internal audit is to provide independent
assurance that an organization’s risk management, governance, and internal
control processes are operating effectively.”
An internal audit is conducted objectively and
designed to improve and mature an organization’s business practices.
The purpose of auditing internally is to provide
insight into an organization’s culture, policies, procedures, and aids board
and management oversight by verifying internal controls such as operating
effectiveness, risk mitigation controls, and compliance with any relevant laws
or regulations.
5 Reasons Why Internal Audits are Important
Internal auditing programs are critical for monitoring
and assuring that all of your business assets have been properly secured and
safeguarded from threats. It is also important for verifying that your business
processes reflect your documented policies and procedures.
Let’s take a look at five reasons why internal
auditing is important and its purpose in keeping your organization compliant
with the common frameworks and regulations.
- Provides objective
insight
- Improves efficiency
of operations
- Evaluates risks and
protects assets
- Assesses
organizational controls
- Ensures legal
compliance
Q. 5 Discuss the
potential implications of the socially responsible investment movement for
companies, their stakeholders and ultimately for society.
Socially responsible investing (SRI), also known as
social investment, is an investment that is considered socially
responsible due to the nature of the business the company conducts. A common
theme for socially responsible investments is socially conscious investing.
Socially responsible investments can be made into individual companies with
good social value, or through a socially conscious mutual fund or
exchange-traded fund (ETF).
- Socially
responsible investing is the practice of investing money in companies and
funds that have positive social impacts.
- Socially
responsible investing has been growing in popularity in recent
history.
- Investors
should keep in mind that socially responsible investments are still
investments and be sure to weigh the potential for return in their
decisions.
- Community
investing is a type of investing where the return is measured on community
impact rather than monetary return.
- Socially
responsible investments tend to mimic the political and social climate of
the time.
Understanding Socially Responsible Investment (SRI)
Socially responsible investments include eschewing
investments in companies that produce or sell addictive substances or
activities (like alcohol, gambling, and tobacco) in favor of seeking out
companies that are engaged in social justice, environmental sustainability, and
alternative energy/clean technology efforts.
In recent history, socially conscious investing has
been growing into a widely-followed practice, as there are dozens of new funds
and pooled investment vehicles available for retail investors. Mutual
funds and ETFs provide an added advantage in that investors can gain exposure
to multiple companies across many sectors with a single investment. However,
investors should read carefully through fund prospectuses to determine the
exact philosophies being employed by fund managers, along with the potential
profitability of these investments.
There are two inherent goals of socially responsible
investing: social impact and financial gain. The two do not necessarily have to
go hand in hand; just because an investment touts itself as socially
responsible doesn't mean that it will provide investors with a good return and
the promise of a good return is far from an assurance that the nature of the
company involved is socially conscious. An investor must still assess the
financial outlook of the investment while trying to gauge its social
value.
Demand for ESG investments soared in
2020.1 Nearly 60% of respondents to an Investopedia and Treehugger survey
indicated an increase in interest in ESG investments and 19% reported
incorporating ESG standards into their portfolios.
Special Considerations
Socially responsible investments tend to mimic the
political and social climate of the time. That is an important risk for
investors to understand, because if an investment is based on a social value,
then the investment may suffer if that social value falls out of favor among
investors.
For this reason, socially responsible investing is
often considered by investment professionals through the lens of environmental,
social, and governance (ESG) factors for investing. This approach focuses on
the company's management practices and whether they tend toward sustainability
and community improvement. There is evidence that a focus on this approach
can improve returns, whereas there is no evidence for investing success from
investing purely on social values alone.
For example, in the 1960s, investors were mainly
concerned with contributing to causes such as women's rights, civil rights, and
the anti-war movement. Martin Luther King Jr. played a large role in raising
awareness for the civil rights movement by targeting companies that opposed the
cause as socially irresponsible.
As awareness has grown in recent years over global
warming and climate change, socially responsible investing has trended toward
companies that positively impact the environment by reducing
emissions or investing in sustainable or clean energy sources. Consequently,
these investments avoid industries such as coal mining due to the negative
environmental impact of their business practices.
One form of socially responsible investing involves
promoting racial justice, equality, and inclusion. Known as racial justice
investing, the purpose is to leverage both institutional and retail dollars to
invest in ways that advance this and other anti-racist causes.
Example of Socially Responsible Investing
One example of socially responsible investing is
community investing, which goes directly toward organizations that both have a
track record of social responsibility through helping the community,
and have been unable to garner funds from other sources such as banks and
financial institutions. The funds allow these organizations to provide services
to their communities, such as affordable housing and loans. The goal is to
improve the quality of the community by reducing its dependency on government
assistance such as welfare, which in turn has a positive impact on the
community's economy.
Where Can Socially Responsible Investments Be Made?
They can be made into individual companies that have
good social value or through a socially conscious mutual fund or
exchange-traded fund (ETF).
What Does ESG Represent?
ESG stands for environmental, social, and governance,
which are important factors for some investors to adhere to. Those investors
look for solid management of a company and seek out those that gear toward
sustainability and community improvement. In 2020, the popularity of ESG
investments took off.
Which Are Among the Top Socially Responsible Bond
ETFs?
They are VanEck Investment Grade Floating Rate ETF
(FLTR), issued by VanEck; SPDR Bloomberg Investment Grade Floating Rate ETF
(FLRN), issued by State Street; and iShares Floating Rate Bond ETF (FLOT), issued
by BlackRock Financial Management.