Exchange-traded funds will continue to lead a shift to investment in ESG (environmental, social and governance) as they attract increased money this year, according to a survey by TrackInsight.
Just over half of investors surveyed (52%) are planning to increase their exposure to thematic exchange traded-funds (ETFs), primarily in ESG and technology, according to the survey.
“There are many lessons to be learned from the COVID crisis, but perhaps the most enduring of which is that resilience and adaptability is the essence of survival, and the world’s largest and most sophisticated investors have been quick to embrace many new ideas that are now available in ETFs,” TrackInsight CEO Jean-Rene Giraud said.
Of the seventeen Sustainable Development Goals (SDGs) outlined by the United Nations, fifteen are covered by ESG ETFs. As the world transitions towards green energy, ESG ETFs are facilitating this shift.
In the first quarter of this year, assets under management of ESG ETFs totalled USD 264.4 billion, up from 206.8 billion in the fourth quarter of 2020. And for the first time last year, ESG ETFs represented more than 10 percent of assets invested in ETFs in Europe, in the contintent’s greenest year yet.
TrackerInsight reported 758 ESG ETFs in the first quarter, up from 671 in the fourth quarter.
In March, the segment also saw significant inflows during extreme volatility, according to Morningstar.
Increasingly conscious regulatory policies mainly drove the surge in demand, and the recognition of ETFs provides additional impetus to investors to express their concerns about sustainable development.
Despite the rapid development of the segment, the collection of data on ESG performance still has far to go. This this one of the main obstacles to the development of ESG ETFs. Currently, many companies are not required to submit ESG data to providers, leading to big holes in data when they are being assessed from a sustainability perspective. Companies can play the system by not submitting data for metrics where they know they will score poorly.
The industry is still by and large in the early stages of its accelerated growth. More rules and regulatory practices will likely be developed and introduced as ESG definitions and distinctions become clearer.
Such platforms as ESG Observatory could supply timely solutions to investors, driven by data and designed with global sustainability leaders. But clearly, more must be done to facilitate and support the rapid growth of ESG ETFs.