There has been a flurry of fund launches and increased demand for one type of ETF.
This year, there has been a surge of interest in ESG-focused ETFs, with a flurry of new launches and increased inflows into existing funds.
By most measures, the amount of money flowing into ETFs with an ESG (environmental, social and governance) focus has risen.
In August, ESG-focused ETFs reached a new milestone, with assets invested in ESG ETFs globally breaking through the $100 billion (£75 billion) barrier, according to research firm ETFGI. The report noted that from January to the end of July 2020, global ETFs with an ESG focus received almost $40 billion in inflows, compared to inflows of $26.7 billion in 2019.
More recent figures for Europe also reveal a spike in interest in sustainable assets. Recent data from Morningstar shows that European sustainable funds reached almost £800 billion in assets under management in the third quarter of 2020. That represented a 10% increase from the previous quarter, when assets under management stood at £720 billion. Sustainable fund assets now account for just over 9% of total European assets.
However, alongside an increase in money being allocated to ESG-focused funds, there has also been a flurry of new ESG-focused ETFs in 2020. As Kenneth Lamont, a passive funds research analyst for Morningstar Europe, said: “One in four of all ETF launches in Europe this year has an explicit climate-aware focus. There are currently 44 climate-aware ETFs listed in Europe.”
Most notably, BlackRock launched three multi-asset ESG ETFs under its iShares banner. The three multi-asset ETFs vary by risk. The supposedly least risky option is the BlackRock ESG Multi-Asset Conservative Portfolio UCITS ETF (LSE: MACG), with 80% invested in bonds and the rest in equities, while the BlackRock ESG Multi-Asset Moderate Portfolio UCITS ETF (LSE: MAMG) has 51% in equities and 49% in bonds. The most adventurous ETF is the BlackRock ESG Multi-Asset Growth Portfolio UCITS ETF (LSE: MAGG), with 75% in equities and the rest in bonds.
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As we noted when the funds were first launched, this is part of a wider push by BlackRock into ESG investing, with the chief executive Larry Fink regularly emphasising the importance of sustainable investing. As well as being driven by a no-doubt sincere belief in the merits of ESG investing, the push to ESG products is also another way for big ETF providers to distinguish themselves and attract new customers at a time when fees have hit rock bottom and are increasingly hard to use as a basis for competition.
Alongside the multi-asset ETFs, this year BlackRock also launched new iShares ETFs providing access to ESG-screened bonds and ESG-screened equity factors.
Another noteworthy launch was the Franklin S&P 500 Paris Aligned Clmt ETF (LSE:USPA). This ETF tracks companies from the S&P 500 that have been selected and weighted in accordance with their compatibility in terms of meeting the goals of the Paris Climate Agreement.
Lamont said: “As the popularity of climate investing grows, so do the accusations of ‘greenwashing’. To address this, a number of index providers have worked with the European Commission to ensure that their strategies are aligned with the Paris Climate Agreement goal to limit the increase in global average temperatures to below 2°C above pre-industrial levels.”
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More recent fund launches include the JPMorgan Carbon Transition Global Equity UCITS ETF, which will track the JPMorgan Asset Management Carbon Transition Global Equity index and offer core exposure to global equities. L&G Clean Energy UCITS ETF has also recently launched and tracks the Solactive Clean Energy Index NTR.
Recent data from the Index Industry Association’s annual benchmark survey showed a 40% increase in ESG indices over the past year.
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