Covid-19 Pandemic Brought Record Inflows for ESG

A byproduct of the Covid-19 pandemic is that it raised more awareness to an already growing space of environmental, social and governance (ESG) investing. As such, it translated to record inflows for ESG.

“Investors have injected record sums into sustainable investment funds during the coronavirus pandemic, providing a glimmer of hope to active managers battered by the relentless flight of capital into passive products,” a Financial Times article noted. “Funds that invest according to environmental, social and governance principles attracted net inflows of $71.1bn globally between April and June this year, pushing assets under management in the products to a new high of just over $1tn, according to Morningstar.”

Furthermore, “separate UK fund flow data from transaction network Calastone found that the amount of new money invested in ESG equity funds between April and July exceeded the combined flows for the previous five years. Sustainable funds’ previous niche status means that their market share is still small relative to the $41tn held by all investment funds worldwide.”

“From 2015 to 2017, little or no new money was invested in ESG funds,” said Edward Glyn, head of global markets at Calastone. “[But] real momentum has been building in the last two years in the appetite for investment products that align with savers’ ethical concerns.”

ETF Opportunities in ESG

Investors who want ESG exposure via an ETF wrapper can take a look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.

The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.

An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.

One ETF with a focus on low carbon emissions is the iShares MSCI ACWI Low Carbon Target ETF (CRBN). The fund seeks to track the investment results of the MSCI ACWI Low Carbon Target Index, which is designed to address two dimensions of carbon exposure – carbon emissions and potential carbon emissions from fossil fuel reserves.

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