Environmental, social and governance (ESG) ETFs are taking off in a big way and an industry leader is promising to offer investors even more avenues for sustainable and virtuous investing.
“We intend to double our offerings of ESG ETFs over the next few years (to 150), including sustainable versions of flagship index products, so that clients have more choice for how to invest their money,” said BlackRock in a statement out Tuesday.
BlackRock’s iShares brand is already behind some of the most widely held ESG ETFs, including the iShares ESG MSCI USA Leaders ETF (SUSL), iShares MSCI KLD 400 Social ETF (NYSEArca: DSI) and the iShares MSCI USA ESG Select ETF (NYSEARCA: SUSA), among others.
While the idea of socially responsible investing (SRI) is taking flight, many advisers and investors are still pondering the ability of these strategies to deliver comparable or better returns relative to traditional equity benchmarks. Still, more companies are noting the importance of ESG themes. In late 2018, BlackRock forecast ESG ETFs rising to $400 billion in combined assets over the next decade.
Massive ESG Opportunity
Comments from BlackRock indicate more and more advisors and institutional investors are inquiring about sustainable investing options.
“In addition to more choice, clients have asked for a simpler way to integrate ESG in their existing portfolios,” said the asset manager. “To meet that need, we will have three ESG ETF suites in the US and EMEA: one that enables clients to screen out certain sectors or companies that they do not want to invest in; one that enables clients to improve ESG scores meaningfully while still optimizing their ability to closely track market-cap weighted indexes; and one that enables clients to invest in companies with the highest ESG ratings and features our most extensive screens including one for fossil fuels.”
Institutional investors have been a big driver behind the growth in sustainable investing. In addition, individual investors, especially Millennials and women, are becoming more attracted to the availability and potential benefits of the ESG investment styles. The potential shift in investment demand represents an opportunity for financial advisors with an understanding of the space to provide guidance to clients looking to align portfolios more closely with their individual core values.
Within the ESG ETF space, there is evidence investors will flock to concepts they like. For example, the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG) and the iShares ESG MSCI USA Leaders ETF (SUSL) debuted last year and both are now among the largest ESG ETFs.
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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.