Tailwinds continue mounting for ETFs adhering to environmental, social and governance (ESG) principles, including the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG) and the FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG).
The second quarter of 2020 was proof positive of advisors’ and investors’ rising enthusiasm for sustainable investment ideas.
“Sustainable fund flows in the United States continued at a record pace in the second quarter of 2020, with estimated net flows of $10.4 billion,” said Morningstar analyst Jon Hale in a recent note. “That nearly matched first-quarter flows and brought the total for the first half of the year to $20.9 billion, just shy of the annual record of $21.4 billion in sustainable fund net flows set in 2019. Last year’s flows were 4 times the previous record for a calendar year.”
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 Comes of Age
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.
“Most of the quarter’s flows came as equity markets rebounded in April. Investors poured $5.8 billion into sustainable funds in April, almost all of it to equity funds. It was the largest monthly flow ever recorded for sustainable funds in the U.S.,” notes Hale.
Furthermore, it’s not only that ESG is able to address the initiatives of the investors they hold dear to their heart, but space is also outperforming relative to the rest of the market. Even Covid-19 hasn’t been able to successfully slow down the momentum of ESG investing.
“While U.S. investors overall poured money into bond funds and pulled record amounts out of stock funds during the second quarter, both stock and bond environmental, social, and governance funds experienced inflows. Investors overall pulled an estimated $137 billion out of stock funds, but ESG investors put $9.3 billion into stock funds,” according to Hale.
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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.