Bloomberg Intelligence has released a report that found ESG ETFs net inflows jumping by 3x, from $31 billion to $89 billion, in 2020. Ten times more than the $9 billion in 2018. The record pace could even accelerate in 2021 with the rise of climate-focused ETFs.
The highest inflows were observed among smart-beta strategies in the US and Europe, which suggests ESG investments tend to be sticky, non-cyclical, and can be viewed as long-term holdings. Flows are fairly concentrated. Three ETFs from the iShares Aware alone account for 18% of ESG. BlackRock, Vanguard, UBS, and Invesco saw some of the largest inflows last year.
The report warns that increased inflows may be driven by asset managers moving their own ETFs into model portfolios, which might not represent organic market demand.
Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, commented: “This year could see inflows to climate-focused ETFs accelerate from an already record pace, driven by favourable policies, lifting the entire ESG asset class as managers add carbon criteria to an increasing number of socially conscious funds. Yet as clean-energy flows take a larger share of the pie, they increase the volatility of overall ESG investing.”
Climate ETFs could continue to see support from favorable policies like the European Green Deal. Clean energy flows rose 13 times faster last year compared to 2019, while low-carbon or fossil-free funds rose five times faster, the report stated.
Bloomberg Intelligence has also found that complex ESG themes, like diversity and inclusion, are often more expensive, with such funds risking liquidation unless returns justify costs.
In 2020, the World Federation of Exchanges surveyed 61 exchanges about sustainability principles. Among those exchanges that responded, 41% had initiatives that correspond to all five Sustainability Principles.
Close to 90% of the responding exchanges perceived investor demand for ESG disclosure, of which 29% believed demand to be extensive. The majority of exchanges do not require assurance on ESG disclosure, but the number of exchanges planning this requirement in the future almost doubled.
There is still no convergence on ESG standards and formats adopted by the exchanges industry. Green bonds became the most commonly offered ESG products for the first time.