Industry Updates

Institutional investors expect increasing ESG ETF flows; report

Scott Longley

New research conducted on behalf of State Street Global Advisors (SSGA) has revealed that 83% of institutional investors and wealth managers expect flows into Environmental Social and Governance (ESG) ETFs to increase between now and 2023.

Just over one in five anticipate a dramatic rise.

As with previous ESG research, the big driver behind the increase ESG flows is investor demand.

"Interest in ESG investing from index and ETF providers alike has been a large focus area for some time now," said Claire Perryman, head of ETFs for SSGA in the UK.

"By contrast, the voice of the client in the ESG ETF debate has been quite muted. We know that clients prioritise ESG criteria differently and that standardised methodology for ESG scoring is currently lacking."

When asked which exclusions would make investors more likely to invest in an ESG ETF, 61 percent of respondents said weapons manufacturers, followed by 44 percent who pointed to fossil fuel companies. The same percentage cited organisations that conduct tests on animals.

When asked what inclusions would make investors more likely to select an ESG ETF, 66% cited sustainable energy, followed by 39% who selected habitat protection. More than one in four (26 percent) said an ESG ETF with a focus on diversity would increase their chances of investing in it.

"Our findings demonstrate that ESG investing covers a broad church and there is still progress to be made in establishing client consensus and industry best practise," said Perryman.

In separate news, Solactive has announced the launch of the Climate and Energy Transition Index, an index tracking the performance of companies that show the best commitment to energy transition in their sectors while exhibiting low volatility and high dividend yield characteristics.

The index is based on a methodology developed by Natixis in collaboration with Sustainalytics, a leading global provider of ESG research and ratings. The index is to be used as the basis for structured products issued by Natixis.

Timo Pfeiffer, head of research at Solactive, said: "Investors can use the Solactive Climate and Energy Transition Index to gain exposure to companies that are pushing forward the transition to greener economies. Given increased social and environmental awareness, investing in such companies can reduce the risks caused by incompliance and potentially provide a ground for future outperformance."

Aurélien Rabaey, head of equity derivatives sales EMEA and global head of equity derivatives financial engineering at Natixis, said: "This new index provides exposure to the companies that are doing the most to reduce their climate impact and their climate risks exposure. Moreover, its features allow the generation of efficient pricing when applied to structured products."

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