European institutional investors are likely to move much of their ESG investments into passive products such as ETFs – partly spurred by Covid-19 but also by expectations for positive performance.
A fifth of the ESG assets belonging to investors who were surveyed is already invested passively, but that percentage will increase over the next five years.
Fund manager Invesco found that 55% of the 101 European institutional investors surveyed believe the majority of their ESG investments will be held in passive products in five years’ time.
Many (60%) feel that ETFs with ESG criteria have the potential for better performance compared to non-ESG equivalents (36% believe there is no connection between ESG and relative performance).
A significant amount of this increased investment into ESG ETFs could take place over the next two years because 45% of those surveyed plan the increase in this timeframe and over two-thirds of the investors believe Covid-19 could be a driver for greater take up of ESG.
Invesco said ETFs in Europe, Middle East and Africa (Emea) incorporating ESG criteria have grown rapidly over the last five years, from US$4 billion (€3.4 billion) in assets under management in June 2015, to around $48 billion at the end of June this year. This is around 5% of total AuM in Europe.
Gary Buxton, head of Emea ETFs and indexed strategies at the firm, said: “For the growing number of investors looking for funds with ESG considerations it is clear that ETFs are playing an increasingly central role in helping them gain exposure. Investors are often first attracted to ETFs due to their low costs and simplicity, but as we have seen so far this year, ESG ETFs have also been able to deliver on performance objectives.”
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