Appetite for ESG drives overall ETF flows in 2022

Despite challenging performance conditions

ESG products accounted for 65% of total flows into ETFs in 2022, amid a challenging backdrop for performance.

The European ETF and ETC market amassed €78.4bn of flows in the fourth quarter of last year, according to Morningstar’s Direct European ETF Asset Flows Update Q4 2022, a figure markedly lower than the €160bn reported in 2021 due to impact on investor sentiment from the war in Ukraine, the cost-of-living crisis and spiralling inflation.

However, passives fared better than active funds as investors flocked into sustainable ETFs.

As mentioned, 65% of total ETF flows were directed towards ESG products in 2022, up from 53% in 2021. Morningstar said assets in ESG investments have grown to €248.8bn from €235.3bn in 2021, meaning ESG assets now represent 18.8% of total assets invested in ETFs and ETCs in Europe, up from 16.7%. The data firm also noted this figure goes up to 20.5% if ETCs are excluded from the calculation.

For the fourth quarter, ESG ETFs saw €14.9bn in flows, an increase from €16.1bn in Q3. Equity products were most popular with €7.8bn in flows, but this was down from €10.1bn in the previous quarter. Meanwhile, ESG bond ETFs weren’t far behind and gaining in popularity with €7.1bn of inflows, a step up from the €6bn of flows seen in the third quarter.

The report said: “The trend in favour of ESG has strengthened notably in the past three years. Driven by a mix of investment in new products and the repurposing of mainstream funds into ESG propositions, annual flows into ESG products as a proportion of total flows into the ETF and ETC market have ballooned to a record high of 65% in 2022 from 14% in 2019.”

European ESG flows (% of total ETF and ETC flows)

European ESG Flows (% of Total ETF and ETC Flows)

Jose Garcia Zarate, associate director of passive strategies at Morningstar, commented on the overall ETF stats: “Against very challenging financial market conditions, the European ETF market proved remarkably resilient in 2022, attracting annual inflows of €78.4bn. This was down from €160bn in 2021, but compared against the strong outflows from active funds, ETFs— passive funds in general—weathered the storm better.

“Furthermore, in a year when ESG underperformed the mainstream, 65% of total flows were directed to ESG products, up from 53% in 2021.”


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...