ETF Stream has partnered with Amundi to analyse the dramatic rise of ESG ETFs. Starting in September 2020, this six-month investigation consisted of three surveys aimed at professional European investors, with two live webinar discussions that focused on key issues in the ESG ETF space.
We have published the findings of this investigation in this report as well as providing a deep dive into two specific areas of the market; engagement and climate ETFs.
Below, we provide snippets of the survey results along with outlining key segments of the report to look for.
ESG ETFs on the rise
Over the next 12 months investors will:
The survey results confirm the direction of travel for ESG ETFs. According to PwC, assets in ESG-focused funds will account for more than 50% of the total European fund market by 2025, representing an annual growth rate of 28.8%. Added to this, ESG ETFs in Europe saw more inflows than non-ESG ETFs in 2020, according to data from Amundi.
Do you have to sacrifice performance to invest in ESG?
MSCI World SRI index vs MSCI World
Source: MSCI
A hotly debated subject among academics but the results show investors are confident they do not have to give up performance when investing sustainably. This has been shown over the past 10 years highlighted by the MSCI World SRI index, which has returned 10.8% a year versus 10.1% for the MSCI World, as at 29 January.
How much tracking error are you willing to accept from an ESG ETF?
It also appears investors are comfortable with deviating from the parent index when investing in ESG ETFs, potentially a sign investors believe the benefits of sustainable investing outweighs any performance metrics.
The growing importance of incorporating climate considerations in portfolios
Do investors look to incorporate the Paris Agreement into their portfolios?
Climate ETFs are on the rise with €1.3bn inflows poured into strategies linked to the European Union’s two climate benchmarks; the Climate Transition Benchmark (CTB) and the Paris-aligned Benchmark (PAB). These survey results show investors are starting to take the impact of climate change very seriously.
ESG as a core holding
How investors categorise ESG
ESG ETFs are starting to replace traditional core indices in portfolios as highlighted by the inflows into S&P 500 ESG ETFs.
As Ashley Fagan, head of ETF, indexing and smart beta strategy and business development for UK and Ireland at Amundi said:"ESG is progressing from a niche thematic holding in specific portfolios to a core allocation. We believe it is just a matter of time before ESG becomes the core of portfolios in the future."
ESG ETF selection
The intensity of the ESG index and the index provider in question are the two biggest considerations for investors when selecting ESG ETFs. Once again, this highlights investors are looking to have a genuine impact when investing sustainably rather than simply treating it as a box ticking exercise.
Issuers need to consider their voting rights
Do investors choose an ETF from a provider that did not fully consider ESG in its voting policy?
How ETF issuers engage with individual companies is another increasingly important factor for investors as the data above highlights. European asset managers tend to have far better voting records than their US counterparts however this can vary at an individual issuer level.
The Investor View
Juha Venäläinen
Senior Portfolio Manager
Cross Asset Allocation, Ilmarinen
AUM: €53bn
Adrien Samuel-Lajeunesse
Investment Fund and ETF Specialist
BNP Wealth Management
AUM: €390bn
James McManus
CIO
Nutmeg