On Demand Webcast: The Rise of ESG ETFs

As investors look for alternative ways to diversify a traditional portfolio of stocks and bonds, some have turned to the environmental, social and governance, or ESG, theme along with related ETFs.

On the recent webcast (available on demand for CE Credit), Dipping Your Toe into the ESG Waters, Abdur Nimeri, Senior Vice President and Senior Investment Strategist at FlexShares, said that there is growing demand for ESG and other sustainable investments in the U.S.

As of 2016, the market size of sustainable, responsible and impact investing in the U.S. was $8.72 trillion or one-fifth of all investment under professional management. Between 2014 and 2016, U.S.-managed assets identified as incorporating a sustainable investment approach expanded by 33%.

Sustainable investments have been slowly gaining momentum among the investment community as more investors look for alternative ways to diversify portfolios and still enhance returns. There were 55 investment funds based on ESG factors with $12 billion in net assets under management in 1995. As of 2016, there were 1,002 fund strategies with $2.6 trillion in assets, and the numbers are still growing.

“Globally, there are now $22.89 trillion of assets being professionally managed under responsible investment strategies, an increase of 25 percent since 2014. In all the regions except Europe, which tightened its definition of sustainable investing, sustainable investing’s market share has grown. In relative terms, responsible investment now stands at almost 26 percent of all professionally managed assets globally,” Nimeri said.

Given the size and scope of the U.S. markets, U.S. investors remain underallocated to sustainable investments when compared to other regions. Specifically, the growth of sustainable investing assets in the U.S. grew to $8.7 in 2016 from $6.7 trillion in 2014. In comparison, growth of sustainable investing in Europe expanded to $12 trillion in 2016 from $10.8 trillion in 2014.