Socially responsible investments that track factors like environmental, social, and governance principles have been drawing a lot of attention lately, and the category could begin to rival some other mainstream investments.
BlackRock’s head of iShares Americas, Armando Senra, argued that ESG investmets could grow to $1 trillion in assets by 2030, CNBC reports.
The ESG fund category is just starting to pick up momentum over the past year as “we’re just at the very beginning” of what could be a decade-long growth story, Senra told CNBC.
The ESG category is already on pace for a record year of inflows, bringing in over $21 billion in the first quarter of 2021 alone. To put this in perspective, ESG funds attracted over $51 billion in net inflows for the whole of 2020, brought in $21.4 billion over 2019, and saw about $5.4 billion in inflows in 2018.
Senra attributed the rising interest in ESG investments to larger asset managers and model portfolio managers who are implementing sustainable investment strategies into their investment models in more impactful ways.
“ESG investing went from being a satellite or a fringe type of an investment strategy to much more of a core-type strategy,” Salvatore Bruno, IndexIQ’s chief investment officer, told CNBC.
However, as more money managers come out with socially responsible or ESG-related strategies, it is up to investors to do their due diligence before diving in. For example, IndexIQ’s ESG strategy eschews exposure to Netflix due to energy usage issues.
“One of the big reasons they’re actually not in our strategy is that they have a significant negative impact on the environment through the high electricity consumption of their data service,” Bruno said, adding that Amazon also didn’t make the cut due to some of its issues with employees that fall under the social aspect of ESG.
CFRA’s senior director of ETF and mutual fund research Todd Rosenbluth warned that while issuers have their preferred ways of defining ESG, the key for investors is knowing what they own.
The same index providers making the definitions are the ones who “classify companies as either growth or value,” Rosenbluth told CNBC.
“Often, they’ll agree with one another, but often, they will not,” he said. “You need to understand what’s inside the portfolio. If what you want is a core product that’s closely aligned to the broader market and you’re comfortable that the five largest stocks are the same five largest stocks in the S&P 500 but there’s a lot of stocks that are not further down, then there’s some great products,” he added.
For more news, information, and strategy, visit the ESG Channel.