Despite more gyrations and volatility for global equities in March, it was another decent month of inflows to exchange traded funds dedicated to environmental, social and governance (ESG) principles.
More inflows to ESG ETFs in March is impressive when considering many of these funds are languishing this year because they exclude fossil fuels stocks, which are among the best-performing groups in 2022. That could be a sign advisors and investors are taking a long-term view of ESG investing and the related ETFs.
“ETFs and ETPs listed globally gathered net inflows of US$7.00 billion during March, bringing year to date net inflows to US$24.88 billion which is much lower than the US$53.48 billion gathered at this point last year,” according to ETFGI, a London-based ETF research firm.
ESG inflows trailing last year’s pace is a predictable result of weaker equity markets this year. Additionally, some cyclical value sectors – namely energy and materials – are performing well in 2022. Many ESG ETFs offer scant or no exposure to those groups. Still, the long-term outlook for ESG investing and its applications within the ETF universe remains attractive.
“Total assets invested in ESG ETFs and ETPs increased by 3.2% from US$378 billion at the end of February 2022 to US$390 billion,” adds ETFGI.
Moreover, data confirms the growth of the ESG ETF landscape in population terms. That could be a sign that ETF issuers sense demand among advisors, institutional investors, and retail investors, potentially indicating there’s more growth to be had in this segment.
“Since the launch of the first ESG ETF/ETP in 2002, the iShares MSCI USA ESG Select ETF, the number and diversity of products have increased steadily. There were 1004 ESG ETFs/ETPs listed globally, with 2,895 listings, assets of $390 billion, from 193 providers listed on 40 exchanges in 32 countries,” notes ETFGI.
Some market observers see avenues for growth through the marriage of active management and ESG. That could be constructive for ETFs such as the American Century Sustainable Equity ETF (ESGA) and the American Century Sustainable Growth ETF (ESGY), both of which are actively managed.
At a time when there’s still confusion about ESG and concerns about greenwashing, funds such as ESGA and ESGY could bring clarity to a space that needs it.
“Confusion persists around what constitutes an ESG fund. According to PRI, a UN-supported initiative which seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions,” concludes ETFGI.
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