The current trend towards more environmental, social and governance (ESG) investing suggests that it’s here to stay. In the case of ETFs, more and more investors are seeking funds out that match up with their ESG initiatives.
It’s not just equities where this growth is taking place. In 2019, for example, there were 479 green bonds issued worldwide.
The focus on the climate and environment has been a recurring theme as of late.
“For the first time since WWII we sense a shift in which climate and the environment — not growth — will become the priority of governments and their citizens, as shortages of food, clean water and air become existential questions,” Saxo Bank Chief Economist Steen Jakobsen said in his latest quarterly outlook report.
In the equities space, more technological advances and the cost of the actual technology as well as the implementation itself are becoming less, which should allow for more proliferation. Furthermore, government subsidies will only help further ESG goals.
“Governments will increase investments and subsidies for ‘green’ industries, starting a new mega trend in equity markets,” said Saxo Bank Head of Equity Strategy Peter Garnry. “We believe that these green stocks could, over time, become some of the world’s most valuable companies — even eclipsing the current technology monopolies as regulation accelerates during the coming decade. Investors should consider tilting their portfolios towards green stocks so they don’t miss this long-term opportunity.”
Bring on the ESG ETFs
In the ETF space, the number of ESG funds just keeps on growing. Based on a CNBC report, recent data from ETFGI showed that “ESG ETFs represented $52 billion of the $6 trillion global assets under management (AUM) of the ETF market.”
Additionally, data suggests that the trend to ESG is not a flash in the pan.
“However, the 2020 Global ETF Investor Survey from U.S. private bank Brown Brothers Harriman (BBH) estimated that nearly 74% of global investors plan to increase their ESG ETF allocation over the next year. In five years, almost one in five investors said they would allocate between 21% and 50% of their portfolio to ESG funds, and BBH concluded that ESG “doesn’t appear to be a ‘passing fad,’ the report added.
Because of the number of new green bonds, fixed income ETFs are also benefitting.
“Since first appearing in 2007, the market for green bonds has attracted significant interest in recent years as sustainability issues rise up the corporate agenda, following pressure for companies to reduce their environmental impact, and following the introduction of increased regulation in the area,” Linklaters capital markets lawyer Amrita Ahluwalia said.
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