Assets under management (AUM) in ESG ETFs saw an incredible increase of 223% growth in 2020, despite the market challenges of the global pandemic.
Data from ETF analysis platform TrackInsight shows ESG ETFs recorded AUM of $189bn, a new high, at the end of 2020 after capturing $97bn of flows over the course of the year, as reported by ESG Clarity in the UK.
See also: – Are ESG ETFs part of the solution?
Amid the market volatility driven by the Covid-19 pandemic, many investors ditched their usual holdings in favour of ESG as the merits of investing responsibly became more apparent. While wider stockmarkets were dropping 20% in Spring last year when the impact of coronavirus truly unfolded, ESG portfolios outperformed due to their higher exposure to healthcare and technology.
However, on top of this, investors begun to realise that business models transition towards a supporting a sustainable future would be more robust as the implications of climate change materialise. Investors also wanted to back companies supporting all stakeholders – employees, clients, supply chains and shareholders – at a time when societies united in the face of the pandemic (the ‘social’ element of ESG).
TrackInsight also recorded nearly 200 ESG ETFs were brought to market over 2020 and ESG and thematic vehicles were also the top performers.
Invesco Solar ETF produced a net return of 221.20% (see table below) over the year while the Invesco WilderHill Clean Energy ETF wasn’t far behind with 200.1% net return (both in US dollar terms).
Anaelle Ubaldino, head of ETF research and investment advisory at TrackInsight, commented: “It’s clear that 2020 was a long-awaited turning point for ESG ETFs with huge growth in this sector. As competition for potentially trillions of dollars of new ESG assets heating up, we expect to see more issuers enter the ESG ETF market over 2021.”
Looking at the wider ETF market, AUM surged to a record high of $7.6trn in 2020, an three-fold increase over the year.
See also: – The coming of age of passive ESG
All regions analysed by TrackInsight saw double digit growth but AUM in Asia-Pacific saw the fastest acceleration with ETF assets rising by 28.7% to a new high of $68bn, of which $69bn was new flow.
European ETF listed assets climbed 26.4% to also reach a new record of $1.3trn, with $138bn of this being new flows, and the North American market grew 24.1% to tip an all-time high of $5.6trn, with $536bn of new flows.
Commenting on the asset growth in ESG ETFs, Camilla Ritchie, senior investment manager at 7IM, said Covid-19 has played a part in highlighting the performance benefits of ESG, and predicts further growth in 2021.
“ESG ETF growth was very strong last year and that shouldn’t come as a surprise really. ESG as a theme has been building momentum over the last few years as it has become clear that investments which take ESG factors into account are not only better companies but also perform better – and especially in drawdowns because they are less risky if they take less risks with ESG. We saw this with the Covid-19 drawdown.
“Will this growth continue into 2021? I think it will. There is a move in the ESG ETF world towards lower carbon solutions as more companies and countries announce they are going to align themselves with zero carbon targets and this will drive the launch of new ETFs this year. The UN Climate Change COP26 conference with some 30,000 delegates from 190 nations is likely to focus minds further on ESG matters and drive further ESG ETF growth.”