There has been a significant increase in interest in environmental, social and governance (ESG) exposures this year, according to leading index provider MSCI, with exchange-traded funds linked to such indices seeing a surge in demand.
ETFs tracking ESG strategies are attracting both ethically conscious investors and those that want to reduce risk in their portfolios.
Equity ETF assets tracking MSCI’s ESG indices grew by nearly 30% to $1.8bn during 2015 and have more than doubled (rising by 140%) since December 2013, with 22 new ETFs launched tracking MSCI ESG indices.
So far in 2015, ten of the 11 ESG ETFs launched have been based on MSCI indices, accounting for 96% of the total flows in the category.
Baer Pettit, Managing Director and Global Head of Products at MSCI, said: “We’re actively addressing the challenges of integrating ESG factors into benchmarks, whether to meet the needs of investors who believe ESG data can enhance investment decisions or those who simply want to align their portfolios with their values.”
He added: “The principle that holds all of this together is investors’ belief that they can capture the market exposure they want, through an investment vehicle that aims to replicate a transparent, rules-based index.”
ETFs tracking the MSCI Low Carbon Indices accounted for nearly 80% of the total equity ETF assets of carbon-themed ETFs since their launch in September 2014, bringing low-carbon ETF assets to more than $460m as of July 2015.
European investors considering ESG-based ETFs have a number of products available to them. Perhaps the leader in the European market is UBS, which offers a range of equity and fixed income funds based on MSCI indices such as the UBS MSCI Socially Responsible ETFs, which invest in equities across a range of regions, and the UBS Barclays MSCI US Liquid Corporates Sustainable UCITS ETF (UC98 LN), which invests in the bonds of firms deemed ethical.
There is also the Amundi ETF MSCI World Low Carbon UCITS ETF (LWCR FP), which excludes companies with the highest carbon emissions intensity and the largest owners of carbon reserves, and the iShares Dow Jones Europe Sustainability Screened UCITS ETF (IESE LN) and iShares Dow Jones Global Sustainability Screened UCITS ETF (IGSG LN), from ETF giant iShares, which target investment in companies which are leading in the sustainability field.