Money managers are churning out socially responsible exchange traded funds that track sustainable themes like social, environmental, and governance principles as investor demand for the strategy remains robust.
At least 20 ESG-related ETFs were listed in the U.S. over the year that ended Wednesday, Bloomberg reports. That’s roughly twice as many as the nine that were launched over the same period for 2021, and considerably more than the two in 2020 and one in 2019.
The sudden acceleration in socially responsible ETFs is seen as a land grab among money managers seeking to fill out a relatively new and very popular ETF sector. The popularity of the theme has also attracted many smaller fund providers that see an opportunity to wrestle assets away from dominant ETF providers that have largely carved out broad index-related asset categories.
While ETFs that target areas with higher environmental, social, and governance standards only make up about 4% of the $10 trillion global ETF market by assets under management, ESG ETFs have already gathered almost $25 billion of 2022’s total inflows, representing around 8% of new money.
“Despite a shifting economic environment, investors are gaining comfort in investing with an ESG lens in 2022,” Todd Rosenbluth, head of research at ETF Trends, told Bloomberg. “Asset managers are rounding out their ESG suite of products to provide investors with more tools to build broadly diversified ETF portfolios.”
The inflows reflect strong demand despite weakening market conditions, especially in the broad market selling in the wake of surging inflation, hawkish Federal Reserve monetary policies, and the geopolitical risks from the Russia-Ukraine war.
Nevertheless, many remain optimistic about the long-term prospects. About 90% of ETF investors globally are expected to add ESG exposure to their portfolios, according to a recent Brown Brothers Harriman survey of investors.
Laura Kane, head of ESG research at Voya Investment Management, argued that the war in Ukraine may have even brought renewed scrutiny to various social and sustainability issues. For example, clean energy funds could benefit from the shift to reducing global reliance on Russian energy.
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