Bloomberg Intelligence reports 10 times rise in ESG ETF inflows since 2018

ESG investing

New analysis from Bloomberg Intelligence (BI) finds that ESG ETFs recorded net inflows of USD89 billion las year – almost three times more than the USD31 billion recorded in 2019, and 10 times the USD9 billion in 2018.

ESG ETFs have seen the highest inflows among smart-beta strategies in the US and Europe suggesting ESG investments tend to be sticky, non-cyclical and can be viewed as long-term holdings, BI believes.

However clean energy, one of the more volatile themes, has been seeing increasing inflows which could see ESG as a whole becoming more cyclical. Flows are fairly concentrated, with three ETFs from the iShares Aware range accounting for 18 per cent of ESG and increased inflows may be driven by asset managers moving their own ETFs into model portfolios, which might not represent organic market demand. BI’s analysis reveals that funds from BlackRock, Vanguard, UBS and Invesco saw some of the largest inflows last year.

Athanasios Psarofagis, ETF analyst at BI, says: “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.”

A low-carbon screen is fast becoming the norm for ESG funds, according to BI. This boosted flows to climate ETFs, which could continue to see support from favourable policies like the European Green Deal. Clean energy fund flows rose 13 times faster last year compared to 2019, while low-carbon or fossil-free funds rose five times faster.

Rising flows to clean energy reflect recent performance, though high volatility and fees make such interest cyclical. During the downturn, clean-energy ETFs had big declines in performance and flows. Similar to clean energy, BI is seeing that complex ESG themes like diversity and inclusion are often more expensive, with such funds risking liquidation unless returns justify costs.

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Beverly Chandler
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Managing Editor