ESG ETFs Analysis

Author

Jingning Feng

The asset value invested in ESG ETFs is as large as 440 billion U.S. dollars.
The ESG ETF market is growing at a high rate.
The performance of ESG investment is even better than non-ESG investment.

ESG exchange-traded funds (ETFs) have gained great popularity in recent years since more and more investors seek to align their investments with their values and make a positive impact on the world or environment. How do they actually perform in the market? This essay will examine ESG ETFs from their market size, growth rate and profitability compared with traditional ETFs.

The value of assets allocated to ESG ETFs is approximately 440 billion U.S. dollars. The BlackRock data shows that about 60 million U.S. dollars are invested in ESG ETFs under its management, while over 2 trillion U.S. dollars are invested in regular ETFs. Although the gap is still wide, the increasing enthusiasm for ESG ETFs around the global market is undeniable. European investors are paticularly attracted by ESG strategies. Out of more than 50 billion dollars in inflows recorded for ESG ETFs globally, 41 billion dollars came from Europe. ESG ETFs accounted for 65% of all net inflows into European ETFs in 2022.

The ESG ETF market grew substantially from 2019 to 2021, and the growth rate in 2020 hit a record high of 160%. From 2006 to 2021, the market increased from 5 billion dollars to 391 billion dollars. The value of the whole ETF market is trending upwards as well. Bloomberg predicted that global ESG assets will exceed 53 trillion dollars by 2025, representing more than a third of the 140.5 trillion dollars in projected total assets under management.

The performance of ESG ETFs is basically on par with, and even better than non-ESG ETFs. Some might worry that focusing too much on ESG factors would cause negative impact on returns. This can be assured looking at performance of ESG ETFs. More than half of corporate issuers and investors in the U.S. and Europe saw neither over-performance nor under-performance of their ESG investments compared to their non-ESG investments in 2021. And more issuers and investors saw an overall outperformance rather than an under-performance in both regions. Between 2019 and 2021, even returns on funds fluctuated, the ESG returns remained consistently higher than non-ESG returns.

Based on the fast-growing market demand and relatively high performance, ESG ETFs are worth investing.