At the start of 2020, optimism was high on the ESG front. We looked forward to seeing the fruition of the Paris Agreement, progress towards the European Green Deal (what Ursula van der Layden called Europe’s ‘man on the moon moment’), the launch of an EU sustainability classification system or ‘green taxonomy’ and introduction of new climate benchmarks. Whilst some actions have been delayed out of necessity, for example the postponement of COP26 in Glasgow, ESG has remained top of mind for many investors during the COVID-19 crisis.
In the first quarter of this year, European-domiciled ESG ETFs enjoyed net inflows of $6.8 billion, taking the combined AUM to $35.3 billion.1 Remarkably, inflows have been constant throughout recent months, even with flows into equity ETFs turning negative in March. And this built on record flows in the precious year as shown in the chart.
Clearly, in absolute terms ESG investments are still not mainstream, and this helps the momentum. Investors are still transitioning, making sustainability integral to portfolio construction and risk management, exiting investments that present a high sustainability-related risk and buying into the growing range of ESG ETFs available. So far, the economic and health crisis surrounding the COVID-19 pandemic has reinforced the trend, knocking earlier critics who thought ESG would not survive difficult markets.