ESG Fund Market Comparison

ESG funds remain relatively new, but represent an alternative way of investing for those interested in including ESG principles in their investment portfolio without impacting returns.

ESG Funds have started with Clean Energy Global Fund back in 2008 and have expanded with a total of 33 funds in 2022. Comparatively, the count of regular ETFs censed by BlackRock shows 360 funds accumulated since 1996. Since 2008, there has been a slow uptake of ESG ETFs until 2016 where we can observe a slight increase in numbers of new ETFs overtime averaging to a little over 4 new ETFs per year.

Despite recent growth, current total asset size remains much lower in ESg ETFs at $60.9 billion as opposed to $2,219 billion in regular regular funds. The largest ESG fund is the ESG Aware MSCI USA ETF which is at $22.4 billion. As shown in the graph below, the distribution of ETF fund sizes is concentrated in the $128 million to $8 billion dollars bracket for both types of ETF.

In terms of performance, ESG ETF tend to perform just as well as regular funds even though there is higher volatility. When comparing returns of the S&P 500 index with the ESG Aware MSCI USA ETF (largest current ESG ETF) we can see that stock performance is quite similar over the 2016-2022 period. Annualized for the S&P 500 is at .171 while that for the ESGU has been at .174, this trend is similar when looking at variability monthly, which is at .049 for the IVV and .05 for the ESGU.

To summarize, ESG ETF funds are rather recent and have started to gain in size since 2016, but represents a new opportunity for investment given that the returns are similar to regular funds.