A new report from Bloomberg Intelligence (BI) has found that ESG, values-based and sustainability-themed ETF assets reached USD490 billion in 1Q globally.
The firm found that North America has been taking a smaller piece of the pie since 2021 while Europe showed relatively more support – a trend which Bloomberg Intelligence expects to continue on favourable policies. While North America narrowed the gap with Europe, with its share of assets increasing to 27 per cent in 2020 from 12 per cent in 2018 and shrinking to 23 per cent in 1Q.
Shaheen Contractor, Senior BI ESG Strategist, and Athanasios Psarofagis, BI ETF Analyst, say: “ESG ETF assets and flows could continue to experience strength in Europe this year, driven by favourable policies, whilst we expect US demand to continue to weaken. Whilst we don’t think political backlash was a reason for slower flows in the US, it could prolong a slowdown by preventing an expansion of the investor base. ESG assets remain fairly concentrated among large managers, creating fee pressures and competition.”
MiFID’s suitability rule could lend support
Europe’s MiFID suitability requirements may underpin ESG ETFs over the long term, boosting Article 8 and 9 funds, the firm says. “The rules require investment firms to assess clients’ sustainable preferences along with investment objectives. Still, incremental gains may be limited as advisers may have already accounted for such preferences given increases in ESG flows. Article 8 funds make up 63 per cent of global ESG ETF assets vs. 2 per cent for Article 9. Higher hurdles for Sustainable Investment allocations in Article 9 ETFs spurred a shift to Article 8, which could reverse if funds are upgraded as regulators make Article 9 criteria more expansive. The Sustainable Finance Disclosure Regulation has three categories. Article 6 ETFs aren’t ESG focused, Article 8 promotes environmental or social characteristics and Article 9 targets sustainable investment”.
BlackRock dominates ESG ETFs in Europe and North America
The firm writes that a few big issuers lead in market share for ESG ETFs in Europe and North America. In North America, BlackRock, Vanguard and Invesco are ahead, with around 65 per cent of regional assets, while in Europe, BlackRock, Amundi and UBS account for similar amounts. Large managers with relatively low-cost structures appear likely to continue pushing down fees, gathering assets faster than rivals and raising fee pressure and competition for smaller peers.
Athanasios Psarofagis was part of the conversation in ETF Express’s podcast. You can listen to him here: Off the Record
