ESG ETFs Reach Record Assets
Total assets invested in environmental, social, and governance exchange-trade funds listed globally reached a record at the end of last month.
ESG ETFs had the second highest monthly inflow on record, according to ETFGI’s February 2020 ETF and ETP ESG industry landscape insights report.
— ETFGI (@etfgi) March 20, 2020
As a result, net inflows in the first two months of the year reached $14.30bn, far higher than the $2.4bn gathered in the same period in 2019. Total assets invested in ESG ETFs also increased to a record $67.99bn at the end of last month.
Europe has the most ESG classified products, followed by the US and then Asia Pacific (ex-Japan).
Deborah Fuhr, managing partner, founder and owner of ETFGI, said in a statement: “At the end of February, the S&P 500 was down 8.2% as coronavirus cases continued to spread and the potential economic impact weighed on investors and the markets.”
ETFGI continued that BlackRock’s iShares launched the first ESG ETF in 2002. By the end of last month there were 293 ESG ETFs and 805 listings globally, with 10 new funds launched in February.
Eurex ESG futures
This month Deutsche Börse ’s Eurex’s launched ESG futures which referenced sustainable versions of MSCI benchmark indices covering USA, world, emerging markets, EAFE (Europe, Australasia and Far East or developed markets outside the US. & Canada ) and Japan.
As #ResponsibleInvesting continues to gain importance worldwide, we extend our #ESG segment: on 2 March, we launched five new #futures covering #sustainable versions of key regional and global #MSCI benchmarks. Learn more: https://t.co/pwvCw7iTgb #ESGDerivatives pic.twitter.com/DVe6yTG7fh
— Eurex (@EurexGroup) March 5, 2020
The new contracts complement Eurex’s previous ESG futures which were launched in February last year and mainly focused on European markets.
Vassilis Vergotis, head of strategy and product design – equity, index and digital assets at Eurex, told Markets Media last month: “With a three-digit growth rate, more than €10bn in notional was traded last year in our ESG segment. We expect new regulatory mandates and the introduction of the European Union taxonomy later this year to provide further tailwind that will support continuous growth in our ESG segment.”
The market for ESG indices is expected to grow at 35% annually according to consultancy Opimas.
The study, ESG Data Market: No Stopping Its Rise Now, by managing director Axel Pierron and analyst Anne-Laure Foubert estimates that the ESG data market could approach $1bn by next year as ESG-driven investment has been shown to have a positive impact on funds’ inflows and performance.
“With an increased level of assets under management allocated to funds following ESG-driven indices, Opimas expects the revenue generated by ESG index providers through data provisioning and benchmark licensing to be around $240m in 2020 and above $300m in 2021,” said the report. “The future will be bright for ESG data providers that gain a competitive edge, as the market is growing fast and is expected to continue to rise.”
Opimas added that a skyrocketing number of ESG indices have launched recently including a wide range of ESG indices for fixed income.
Reid Steadman, global head of ESG at S&P Dow Jones Indices, said on the index provider’s Indexology blog that new beta-like ESG indices have had better performance during the recent market turmoil due to how the index methodology sorted the largest companies that drove performance.
“The S&P 500 ESG Index has provided low tracking error relative to the S&P 500 and similar risk, but also a better return,” Steadman added.
He asked if the S&P 500 ESG Index will continue to track and even improve on the performance of the S&P 500 in the future.
“Common sense and our lawyers prevent us from speculating, but it appears that the ESG indices are passing major tests – their first year live, their first rebalance, and their first bout with market volatility – even better than expected,” he added.
However Pierron warned that, in spite of the progress, ESG investing still faces some hurdles as ESG ratings are based on incomparable data.
“The bigger danger looming is the backlash after a highly ESG-rated company is caught off guard by an unforeseen turn of events that reveals its ESG data to be flawed, incomplete or not fully transparent which, in turn, could compel people to start questioning the value of integrating ESG criteria into their investment decisions,” he said. “This would be a setback with potentially significant consequences going forward.”
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