Is the Impact of ESG ETFs Finally Being Felt?

ETF inflows are set to have another banner year of inflows at $270.5 billion, along with total assets under management (AUM) reaching over $4 trillion, according to data from ETF.com. One theme that is emerging is the impact of environmental, social and governance (ESG).

One of those breakout funds is the iShares ESG MSCI USA Leaders ETF (NasdaqGM: SUSL). SUSL seeks to track the investment results of the MSCI USA Extended ESG Leaders Index, which is a free float-adjusted market capitalization weighted equity index designed to reflect the equity performance of U.S. companies that have favorable environmental, social and governance (“ESG”) characteristics.

“We’ve been talking about ESG for years,” said David Nadig, managing director of ETF.com on CNBC’s “ETF Edge.” “This year, we finally saw some breakout flows. SUSL came out of the gate in May. A lot of people have been poo-pooing the ESG concept. [SUSL] pulled in a billion-and-a-half dollars in six months. I don’t know what you call success if not that. I think that took a lot of people by surprise. I think ESG is here to stay and people will stop snickering about it.”

“You want to follow what institutions are doing. If you’re a big pension fund, ESG is your mandate now. You have no choice but to be adherent, and I think these ETFs are going to continue to outperform,” said Tim Seymour, Seymour Asset Management’s founder and chief investment officer. “We’ve all heard about what’s going on in the oil and gas sector and what companies are going to have to adhere to by 2021, 2022, so, I like the call.”

ESG Exposure Via ETFs

How can ETF investors capitalize on the ESG space as it experiences expansion? One fund to look at is the FlexShares STOXX US ESG Impact Index Fund (BATS: ESG). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® USA ESG Impact Index.

The fund will invest at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of the underlying index. The underlying index is an optimized index designed to provide broad market exposure that is tilted toward U.S. companies that score better with respect to a small set of ESG characteristics and to provide the potential for attractive risk-adjusted performance relative to the STOXX® USA 900 Index, as determined by the index provider.

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