Encouraging Signs Mount for ESG ETFs | ETF Trends

Data confirm that advisors and professional investors continue embracing environmental, social and governance (ESG) ETFs, moves that could be supportive of the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG) and the FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG).

ESG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® USA ESG Impact Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® USA 900 Index, a float-adjusted market-capitalization weighted index of U.S.- incorporated companies. Under normal circumstances, the fund will invest at least 80% of its total assets in the securities of the underlying index.

ESG “ETFs and ETPs listed globally gathered net inflows of US$3.49 billion during June, bringing year-to-date net inflows to US$32.02 billion which is significantly more than the US$9.86 billion gathered at this point last year.  Assets invested in ESG ETFs and ETPs increased by 7.3% from US$82 billion at the end of May 2020 to reach US$88 billion a new record at the end of June,” according to ETFGI.

ESG Boom Is Upon US

To date, investors tapping broad market funds have been mostly insulated from ESG offenders because those offenses have been company-specific, but that could change over time.

When covering ESG investments, the environmental aspect includes attributes like climate change, natural resources, pollution, waste management, and other environmental opportunities. The social aspect incorporates human capital, product liability, stakeholder opposition, and other social opportunities. Lastly, the governance aspect covers things like corporate governance and corporate behavior.

Environmental, social, and governance (ESG) investing interest is exploding in the capital markets—even more so during the coronavirus pandemic. However, before investors dive into ESG, they must understand the long-term risk associated with the space as it continues to grow in popularity.

“Since the launch of the first ESG ETF/ETP in 2002, the iShares MSCI USA ESG Select ETF, the number and diversity of products have increased steadily, the Global ESG ETF/ETP industry had 369 ETFs/ETPs, with 1,019 listings, assets of $88 Bn, from 89 providers on 31 exchanges in 25 countries.  During June, 21 new ESG ETFs/ETPs were launched,” notes ETFGI.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.