Industry Updates

ESG's AUM expected to reach $400bn

George Geddes


This week witnessed iShares issuing its 6-strong range of Environmental, Social and Governance (ESG) screened ETFs. The funds have been added to its sustainable investing range. Working alongside the index provider MSCI, it has become a "natural partner" of iShares according to Benoit Sorel, head of iShares product for EMEA, who spoke with ETF Stream.

The list of ESG-screened ETFs:

Fund nameTickerTotal Expense RatioiShares MSCI World ESG Screened UCITS ETFSAWD20 bpsiShares MSCI Japan ESG Screened UCITS ETFSAJP20 bpsiShares MSCI Emerging Markets IMI ESG Screened UCITS ETFSAEM18 bpsiShares MSCI Europe ESG Screened UCITS ETFSAEU12 bpsiShares MSCI EMU ESG Screened UCITS ETFSAUM12 bpsiShares MSCI USA ESG Screened UCITS ETFSASU7 bps

In addition to the newly added ESG range, the sustainable investing option also includes 8 Social Responsibility Investing (SRI) ETFs. If you Google "what is an SRI ETF?", a larger number of results include ESG in its definition. So it makes you think, "what's the difference between ESG and SRI?".

When Sorel was asked this question, he refers back to an assumption made in the article posted last week which calls SRI ETFs a more "extreme" version of ESG ETFs, for which he agreed with.

"SRI ETFs are constructed by keeping 25 per cent of the best ESG scored firms per sector and per region around the world. It is like factor investing in ESG, if you only keep 25 per cent of the market with the best scores, it's a high engagement to buy those funds", said Sorel. Therefore, the SRI removes 75 per cent of the companies whereas "ESG screened ETFs are more mainstream for those with corporate values and want to buy the same market exposure as a market cap index. Its bringing ESG mainstream for any investor."

SRI ETFs are for a smaller segment of the market whereas ESG ETFs are for anyone with corporate values, wanting to replace their core allocation. Sorel explains how iShares' clients are interested in whether their investments are bringing value to their portfolio as well as if they comply with their core values.

iShares anticipate more investors to incorporate ESG values in to their investments in the near future. Assets under management for ESG ETFs is currently $25bn, but the ETF provider is expecting this value to boom up to $400bn by 2028. This significantly large value is predicted as a result from the "growing demand, going from niche to mainstream and the growth of the ESG index market".

Sorel said how 40-50 per cent of every client meeting he has is discussing the topic of ESG. There is a growing demand for the product which is why the AUM is expected to continue rising. iShares will issue more ESG ETFs in the future as there are "still gaps in which the clients are demanding".

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