How ETFs Are – or Are Not – Supporting Sustainable Development

The volume of assets in exchange-traded funds (ETFs) aligned with environmental, social and governance (ESG) issues hit $174 billion at the end of 2020, according to research by TrackInsight.

However, less than half of this total was associated with the increasingly popular Sustainable Development Goals (SDGs), introduced by the United Nations in 2015 to encourage investment into specific areas for global improvement.

Total assets in ESG ETFs grew from $33.7 billion at the end of 2018 to $79.4 billion 12 months later. By the end of last year the total was $246.1 billion.

Within this, the total aligned to the SDGs grew from $9.3 billion in 2018 to $20.6 billion in 2019, and $71.7 billion in 2020.

The 17 SDGs are global targets addressing environmental and social issues such as gender equality, clean energy, access to clean water and sanitation, and achieving zero hunger worldwide. Eleven of these goals are directly addressed by ETFs – but most focus on climate action, gender equality, and clean energy.

According to the Financial Times, TrackInsight and the UN Conference on Trade and Development have collaborated on a new tool – the ESG Observatory – to help investors identify SDG-aligned ETFs. The UN estimates that achieving the SDGs would require investment of at least $2.5 trillion a year between 2015 and 2030.

The ESG Observatory reported $39.5 billion of inflows into ESG ETFs during the fourth quarter of 2020, with 96 new funds launching.

According to its data, there are 207 SDG-aligned ETFs on offer to investors globally, out of a total of 549 ESG ETFs.

Within this, 155 target climate action issues, with $49.1 billion in combined assets under management. Another $20.7 billion is invested in 18 ETFs themed around gender equality.

Recent research by Morningstar showed BlackRock, Calvert, DWS and Vanguard to be responsible for the 10 most popular sustainable passive funds in the US.