Sustainable investing gains momentum in ETFs

MSCI reports a high demand in ESG data and indexes. ETFs tracking the MSCI ESG indexes grew nearly 30% and eleven new ETFs were launched within 2015. Still, the UN sees room for improvements - especially in the US. Find more about sustainable investing in the altii special on sustainability

ETF providers see a rise of ESG criteria used in investment processes. Due to the strong demand for sustainable investment products, eleven new ETFs on this topic have been launched during the year. Ten of those ETFs are tracking the MSCI ESG Indexes. The assets of ETFs using the MSCI ESG Indexes to include environmental, social and governance data have grown by about 30 percent to $1.8 billion during this year. 96 percent of total inflows in this category are flowing into MSCI indexes based products. Previously, it has been reported that more institutional investors are using ESG criteria in their investment processes.

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. 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.”

According to a United Nations backed study, especially US asset managers are only slowly including ESG data in their investment decisions. "Failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is a failure of fiduciary duty," the authors of the study, backed by U.N. partner organisations including the Principles for Responsible Investment, said. Doing so, investment performance might be increased, says an Arabesque Asset Management study.

Although in Europe, more asset managers are incorporating ESG criteria, the report calls regulators and policymakers to clarify the need for sustainability to asset managers and make sure that they are more transparent when reporting about ESG aspects.