2020 was a great year for ESG investing in Australia. Whether you were on the side of Environment, Sustainability, Governance or other, there was something positive for you.
ESG also goes by other names like ethical investing or socially responsible investing and it comes as investors are looking to better align their investments with their own personal values. More often than not, investments of this nature look to exclude certain sectors such as weapons, gambling, tobacco and other types that may go against a certain set of morals or values.
There are some great arguments as to why companies that are more socially responsible tend to last longer as they look beyond just the immediate quarterly bottom line. It's a belief that even Larry Fink and the team at BlackRock believe in as per his latest CEO Letter (https://www.blackrock.com/au/individual/larry-fink-ceo-letter). They see purpose as the driver of long-term profitability and that sustainability should be at the heart of how they invest.
Many others are getting onboard with ESG related investing as well and using data from the ASX and Chi-X, we can see the record levels of growth for these funds in 2020. Along with other metrics we can paint a picture that is quite positive for ESG ETFs.
All data and images below come from the 2020 Year in Review app available in The Apps section or HERE. They are created by using the app and using either filters or clicking on bar charts to change how other charts can be seen. An example of this navigation from the main homepage to the user filtering on "ESG" on the bar charts or the available Thematic filters is as follows:
Here are some of the results from our analysis for ESG related ETFs.
Funds Under Management (FUM)
In 2020, FUM for ESG related ETFs grew by AU$1.4bn to a total of AU$2.8bn as the year ended. Compared to other themes we categorise ETFs into, this was behind Multi-Sector, Fixed Income, Commodity and Technology related ETFs.
Of those ESG related ETFS, the best came from ETHI (BetaShares Global Sustainability Leaders ETF) which had over half a billion in FUM in 2020 and just over AU$1bn in overall FUM.
In terms of Net Inflows (takes into account outflows and inflows), ESG ranked 4th behind the Multi-Sector, Fixed Income and Commodity related thematics. It saw AU$1.3bn in 2020 net inflows which doubled the AU$561m in 2019 and triples the AU$349m of net inflows in 2018.
ETHI leads the way again with nearly half a billion (AU$499.7m) of net inflows in 2020 compared with only having AU$150m in 2019.
In terms of transactions, many more trades occured for ESG type ETFs in 2020 than in previous years as more options to trade have become available. However, in terms of the thematics we rank, this level of trades is only 7th on our list.
Again, with no surprises, ETHI is the most traded ESG related ETF in 2020 with a fair margin between it and FAIR which came second. An total of 84.3k trades were executed for ETHI ETFs in 2020 compared with 14.7k in 2019 and only 5.4k in 2018. A decent improvement.
ESG related ETFs returned an average of 6.4% for investors in 2020. This is down on the 32.4% average in 2019 but it is above the average return for ETFs in 2020 of 5.7%.
Whilst ETHI outperformed in other categories, IMPQ (eInvest Future Impact Small Caps Fund) outperformed all others (with close competition from INES and ETHI). It returned nearly 29% in terms of cumulative total price performance which takes into account dividend distributions.
Stay tuned for more deep dives into other market updates and ETF articles on our blog.