The year of 2020 saw a peak in the surge towards ESG investing; with inflows of €42bn in the European ESG ETF market in 2020 vs. €17bn in 2019. ETFs are an ideal, low-cost way for investors to diversify their portfolios. Allocating assets to ESG-focused ETFs gives investors exposure to stocks that contribute towards positive impact, or excludes those that have negative impacts. Europe leads the way with 47% of ESG exchange-traded products listed in the region and 69.7% of investors surveyed by Amundi planned to increase their ESG ETF allocations within the next year.

Aligning investments with personal or corporate values stood out in the survey as the primary reason for investors allocating assets to ESG (77.3%), ahead of driving performance (50%) and risk management (48.5%). Despite the debate over whether or not investors must sacrifice performance to invest sustainably, 84.9% of investors surveyed do not see ESG investing as throwing away basis points.

As investors transition to more sustainable solutions, there are many possibilities to align performance with sustainability profile. Whether addressing their individual values, managing sustainability risks, seeking to generate impact or using ESG as a factor to drive sustainable performance; there is no one-size-fits-all approach to incorporating ESG into portfolios.

Traditionally a niche thematic holding, ESG is moving towards core allocation within portfolios of the future; 67% of survey respondents view ESG as core, rather than satellite holdings. This shift to the mainstream is highlighted by the launch of ESG versions of traditional indices, such as the S&P 500 ESG and the EURO STOXX 50® ESG.

Contrary to the view of some asset owners that ETFs are restricted in their ability to influence change through stewardship, passively managed assets have the same voting rights as active, and many passive managers are among the world’s largest active managers. Investors can seek a manager with the in-house expertise and resources to vote on shareholder resolutions.

Highlighting the importance of stewardship in passive investing, 79.8% agreed that asset manager voting and engagement was either essential or very relevant while 45.7% of survey respondents would not invest in an ESG ETF from an issuer that did not consider ESG in its voting policy.

ESG intensity ranked as the most important aspect of ESG ETF selection criteria, showing the demand for ESG strategies with a genuine positive impact rather than simply treating sustainable goals as a tick box exercise.

The typical ETF selection criteria seems less critical for investors when selecting an ESG-focused product. ESG intensity was ranked more important than the index provider and the asset manager’s ESG expertise, confirming the importance of solutions that match investors’ differing needs, values and constraints.

Survey respondents highlighted the issue of climate investing with 74.2% having considered climate within their portfolios and 64.9% seeking to align with the goals of the Paris Agreement.

Source: Amundi, 2021

Source: ETFGI, January 2021