The amount of money flowing to ESG-focused ETFs in Europe ‘accelerated strongly’ in 2021, helping to push overall ETF assets to all-time highs, according to data from Morningstar.
Last year, 51 percent of inflows to the European ETF market headed for ESG products, compared with 40 percent in 2020 and 10 percent in 2019, says the research firm.
By the end of the year, the total amount managed by ESG ETFs stood at €244 bn ($278 bn), accounting for 17.4 percent of all ETF assets in the region.
‘The trend in favor of sustainable investing is accelerating, with a combination of new money and transfers from mainstream products into ESG versions,’ write Morningstar analysts.
‘The latter is coming about partly as a conscious decision by investors, but it is also being helped by the conversion of non-ESG ETFs into ESG versions, thus bringing all money invested in them into the ESG fold.’
Despite the challenges posed by Covid-19, investors have continued to up their focus on ESG issues, particularly climate change and human capital management.
During 2021, asset owners and managers made dozens of new commitments on sustainability issues, with many announced in the run-up to the UN Climate Change Conference last November.
For example, a group of 29 major institutional investors, part of the UN-backed Net-Zero Asset Owner Alliance, pledged in October to reduce portfolio emissions by at least a quarter across their equity, corporate bond and real estate holdings by 2025.
Interest in ESG products helped lift the overall ETF market in Europe to new highs in 2021, says the Morningstar research.
Over the course of the year, flows to European ETFs totaled €161 bn, a rise from €103 bn in 2020, reports the firm. At the end of the fourth quarter, ETF assets stood at €1.41 tn – the highest level on record.
‘In terms of asset classes, 2021 was the year when equity market exposures ruled,’ notes Morningstar. ‘This was hardly surprising given the sizable upside to valuations. Seventy-one percent of all ETF flows in the year went to equity products.
‘Flows into bond ETFs in 2021 amounted to €38 bn, a slight increase from 2020. Assets in bond ETFs closed the year at €310 bn, up from €267 bn in 2020.’
Thematic ETFs also had a banner year. The products, which focus on specific investment themes such as wind energy or cyber-security, saw record inflows of €11.4 bn, compared with €10 bn in 2020.
Total assets managed by thematic ETFs climbed to €37.7 bn last year, up almost a third from €23.3 bn in 2020, says Morningstar. At the end of the year, the largest thematic fund by assets was the iShares Global Clean Energy UCITS ETF, with €4.8 bn under management.