Thematic and ESG ETPs see numbers increase at the London Stock Exchange
2021 was a year that saw strong growth in the London Stock Exchange’s ETP range. Overall, there were 311 new ETPs across the year, divided into 181 ETFs and 130 other types of ETPs. This compares with 193 ETPs listed on the London Stock Exchange in 2020.
Lida Eslami, Head of Business Development, ETP and IOB, London Stock Exchange Group explains that the other types of ETPs such as ETNs and ETCs saw their launches dominated by the leveraged and inverse ETP products launched by firms such as GraniteShares, who launched 15 and Leverage Shares, who launched 104 new products.
November’s ETFGI figures revealed that the leveraged and inverse ETFs and ETPs had enjoyed a strong month globally, with net inflows of USD1.3 billion during November, with total assets standing at USD121 billion on a global basis.
Eslami notes that these types of products, plus the single stock ETPs, give investors exposure to daily return of an underlying stock being tracked such as Amazon or Nio, either as a single stock or with up to three times the long or short exposure.
Thematic ETPs enjoyed a strong year globally with ETFGI reporting total assets in the thematic camp standing at USD440.75 billion, with USD77.87 billion raised over 2021 to the end of November.
The London Stock Exchange has seen a number of thematic ETP launches over 2021, with ETPs focused on themes such as cloud computing, e-commerce, biotech and blockchain.
“Investor demand is driving it,” Eslami says. “ETFs are a cost effective and efficient wrapper offering opportunity to invest in a particular theme. The products are becoming more customised and targeted.” She notes that some of the very targeted thematic ETPs have fewer holdings, focusing on their specific investment objectives.
ESG has been a driving force over 2021 for the London Stock Exchange, responsible for close to half of new ETFs launched last year. ETFGI reported that the first nine months of 2021 saw record net inflows of USD118.94 billion into ESG ETFs, beating the prior record of USD47 billion gathered in the first nine months of 2020.
There were an estimated USD324 billion invested in ETFs and ETPs listed globally at the end of September.
“ESG is one of the key themes that everyone is talking about and an ESG ETF can enable investors to address their climate concerns,” Eslami says.
Beyond the launching of ETPs in the ESG sector, the London Stock Exchange has adopted sustainable measures of its own. In a bid to recognise the companies and funds leading the green revolution, London has introduced the Green Economy Mark which recognises London-listed companies and funds that derive more than 50 per cent of their revenues from products and services that are contributing to environmental objectives such as climate change mitigation and adaptation, waste and pollution reduction, and the circular economy.
The London Stock Exchange writes that with a growing proportion of asset owners and managers seeking to deploy capital into sustainable investments, the Mark provides an investible universe of ‘green economy’ equities, enabling a broad exposure, rather than a focus on one area. Over 100 issuers on the London Stock Exchange have been recognised with the Mark across all Main Market segments and AIM.
Eslami says: “In equities, our Green Economy Mark, launched in 2019, is a world-first data-driven green classification and Mark for equity issuers – recognising listed companies and funds which derive more than 50 per cent of their revenues from environmental solutions. The Mark is fast becoming an important benchmark for global investors; 77 per cent of the investor base for green economy companies is from outside the UK.”
Another initiative is London’s Voluntary Carbon Markets solution, which is designed to accelerate the availability of financing for projects that will support a transition to a low-carbon economy.
Here, the goal is to address two major challenges: access to capital at scale for the development of new climate projects worldwide; and primary market access to a long-term supply of high-quality carbon credits for corporates and investors.
The London Stock Exchange writes that this will enable companies and investors to confidently augment credible net zero transition strategies, by financing additional projects to offset unavoidable carbon emissions during their path to net zero.
Eslami notes that the London Stock Exchange is also leading the global development of the sustainable finance ecosystem, with a track record for developing first to market solutions not just in equities but also in debt markets.
Eslami says: “London was the first exchange in the world to launch a Transition Bond Segment, open to companies listing bonds for which the proceeds will advance the transition to a low-carbon economy.
“The new segment joins Green, Social, Sustainability and Issuer-Level (comprising both sustainability linked and green revenues eligibility) segments to form London Stock Exchange’s Sustainable Bond Market (SBM). Its development is part of a coordinated approach across LSEG, incorporating the innovative TPI Climate Transition Index and a group wide commitment to net zero emissions targets.”
The Sustainable Bond Market (SBM) is home to the first certified green bonds out of China, India, the Middle East and first sovereign green bonds from Asia Pacific and the Americas.
“It’s clear that ESG is now ‘core’ and ETF issuers are seeking to offer products that address global concerns, such as those covered by the UN’s Sustainable Development Goals (SDGs),” Eslami says. This can be evidenced by growth in number of ESG ETFs, , their asset under management and new inflows, and rising trading turnover.Looking forward, Eslami predicts more ESG products coming to the market, and more focused on ESG fixed income ETFs.
She adds: “In terms of thematic ETFs, I am pretty sure their growth is going to continue as they provide investors the opportunity to capture long-term megatrends andissuers will launch new innovative products to address this demand and provide investors with the relevant toolkit.