A tale of three ESG ETF launches

Tom Eckett

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ETF issuers are renewing their focus on sustainable investing as calmer markets once again offer the opportunity to bring products to market.

Last week, Amundi, Fidelity Investments and HSBC Global Asset Management all launched ESG ETF ranges in Europe which had a combined total of 14 products.

While all three ranges offer exposure to the sustainable market, they do so in entirely different ways highlighting how there is no one size fits all approach when it comes to ESG investing.

Amundi has gone down the route of bringing to market a range of eight core ESG ETFs that offer investors exposure to two well-known MSCI ESG ranges, the universal and leaders indices.

Tracking the parent index closely, the MSCI Universal Select indices are far more light touch from an ESG perspective. For example, the MSCI USA ESG Universal index currently has 624 constituents versus 634 for its parent index, the MSCI USA.

On the other hand, the MSCI USA ESG Leaders has 310 stocks in its index meaning it should give investors a more intense exposure to companies with strong ESG scores. Amundi offers exposure to both indices in its new range.

Turning to HSBC GAM, it has unveiled three sustainable ETFs – with three more coming to market over the next few weeks – which target a 50% carbon emissions reduction, 50% fossil fuel cuts and a 20% ESG score uplift versus the parent indices.

The launches come amid an industry-wide focus on reducing carbon emissions after the European Commission introduced two climate change benchmarks which look to exclude carbon-intensive companies.

The ETFs offer exposure to companies with low carbon emissions while employing a rules-based approach.

The same cannot be said for the three Fidelity International ESG ETFs which are actively managed and leverage the firm’s in-house sustainable expertise.

Like the other two ranges, however, each ETF consists of a large number of stocks – between 250 and 500 – meaning the portfolios are well diversified.

The launches show the majority of ETF issuers in Europe are all-in on ESG being the key growth area over the next decade. The market is still very much in its infancy with ESG ETF assets totalling $31bn in Europe, as at 31 March, according to data from Morningstar, a fraction of the $781bn ecosystem.

The positive signs are here though. During the coronavirus turmoil, ESG ETFs saw €730m inflows in March despite investors pulling a record €22bn from the overall European ETF market.

ETF Insight: Are ETF and index providers taking ESG seriously?

While assets remain at relatively low levels, it will be crucial for ETF issuers to develop strong ESG ranges in order to capture flows as they begin pouring in over the next five years.

On the flip side, asset managers risk being left behind if they do not consider ESG investing as a value proposition. According to research conducted by Moody’s Investors Service in March, asset managers that consider ESG a top three priority have an average AUM replacement rate of 117% over the past three years versus just 73% for managers that do not consider it a top 10 priority.

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