ESG Index-Based Strategies:
ESG index-based strategies offer various advantages, including lower costs compared to discretionary, actively managed ESG strategies.
1. Lower Costs: Index-based strategies typically have lower management fees compared to actively managed strategies. This is because index funds aim to replicate the performance of a specific ESG index, requiring less research and management effort than actively selecting and managing individual securities based on ESG criteria. This cost efficiency is a significant advantage for investors seeking exposure to ESG factors without incurring high fees.
2. Fee Structures and Stewardship Activities:
Fee Structures: While ESG index-based strategies may not necessarily have slightly lower fee structures compared to other index-based strategies (option A), they do offer cost advantages over actively managed ESG strategies.
Stewardship Activities: Although stewardship activities are important, ESG index-based strategies may not offer more focused stewardship activities compared to actively managed strategies (option C), as active managers often engage more directly with companies on ESG issues.
References from CFA ESG Investing:
Cost Efficiency: The CFA Institute explains that index-based strategies, including ESG-focused ones, generally incur lower costs than actively managed strategies due to their passive management approach.
Index-Based ESG Strategies: These strategies provide a cost-effective way to incorporate ESG considerations into a portfolio, making them attractive to investors who prioritize cost efficiency.
In conclusion, an advantage of using ESG index-based strategies is their lower costs compared to discretionary, actively managed ESG strategies, making option B the verified answer.
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