R for Sustainable Finance
An Analysis of the ESG ETF markets
By Fanishka Sookharee
ESG Investing (also known as “socially responsible investing,” “impact investing,” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social, and governance (ESG) factors or outcomes. Forms of sustainable finance have grown rapidly over the recent years and this growth has been spurred by shifts in demand from across the finance ecosystem, driven both by the search for better long-term financial value, and a pursuit of better alignment with values.
To study the ESG market using data analysis, this memo uses data from BlackRock ETFs since it is the world’s largest asset manager guiding individuals, financial professionals, and institutions in building better financial futures. BlackRock has adopted ESG investing at a growing pace recently and is currently the world number one manager of socially responsible assets.
Data
This data comprises of 388 ETFs for a total valuation of USD 2333 billion, with 21 different variables. ESG ETFs at BlackRock represent just 2.7% of its total asset under management which is under 27 funds with a total aum worth USD 63 billion.
Feature engineering to visualize the data
## # A tibble: 1 x 2
## total_aum_bn total_funds_n
## <dbl> <int>
## 1 2333. 388How big a part of BlackRock’s ETF business are the ESG ETFs?
## # A tibble: 2 x 4
## is_esg percent_of_total_aum aum_bn funds_n
## <chr> <dbl> <dbl> <int>
## 1 ESG Fund 2.69 62.7 27
## 2 Regular Fund 97.3 2270. 361## # A tibble: 3 x 5
## name esg_fund regular_fund regular_div_by_esg esg_as_pct_regu~
## <chr> <dbl> <dbl> <dbl> <dbl>
## 1 percent_of_total_aum 2.69 97.3 36.2 2.76
## 2 aum_bn 62.7 2270. 36.2 2.76
## 3 funds_n 27 361 13.4 7.48The 27 ESG funds represent only 2.7% of the total AUM while the other 361 regular funds account for 97.3% of the total AUM. There are 13 times more regular funds compared to ESG funds, but the AUM of the regular fund is 36 time larger than that of ESG funds.
Clearly this shows that ESG funds account for only a small amount BlackRock’s ESG portfolio, as displayed in the below chart.
From the below Histogram, it can be seen that the majority of the funds have a small value and just a small number of funds hold most of the assets.
## Warning: Removed 10 rows containing non-finite values (stat_bin).## Warning: Removed 2 rows containing missing values (geom_bar).
Again, we can see from the below boxplot that a few most of the assets are in a few outlier funds only.
Some more charts to further compare the ESG funds to the Regular funds.
## Warning: Removed 10 rows containing non-finite values (stat_bin).## Warning: Removed 4 rows containing missing values (geom_bar).
Analyzing the largest funds under both the ESG and Regular funds
## # A tibble: 388 x 30
## ticker name incept_date gross_expense_r~ net_expense_rat~ net_assets_usd_~
## <chr> <chr> <date> <dbl> <dbl> <dbl>
## 1 IVV iShare~ 2000-05-15 0.03 0.03 306960.
## 2 IEFA iShare~ 2012-10-18 0.07 0.07 101197.
## 3 AGG iShare~ 2003-09-22 0.05 0.04 90788.
## 4 IEMG iShare~ 2012-10-18 0.11 0.11 76712.
## 5 IJR iShare~ 2000-05-22 0.06 0.06 69622.
## 6 IWF iShare~ 2000-05-22 0.19 0.19 68177.
## 7 IJH iShare~ 2000-05-22 0.05 0.05 62850.
## 8 IWM iShare~ 2000-05-22 0.19 0.19 58692.
## 9 IWD iShare~ 2000-05-22 0.19 0.19 56864.
## 10 EFA iShare~ 2001-08-14 0.32 0.32 55356.
## # ... with 378 more rows, and 24 more variables: net_assets_as_of <date>,
## # asset_class <chr>, sub_asset_class <chr>, region <chr>, market <chr>,
## # location <chr>, investment_style <chr>,
## # sustainability_characteristics_msci_esg_fund_ratings_msci_esg_fund_rating_aaa_ccc <chr>,
## # msci_esg_quality_score_0_10 <dbl>,
## # msci_weighted_average_carbon_intensity_tons_co2e_m_sales <dbl>,
## # msci_esg_percent_coverage <dbl>, sustainable_classification <chr>, ...The largest ESG fund is the iShares ESG Aware MSCI USA ETF and the largest regular fund is the iShares Core S&P 500 ETF.
## # A tibble: 2 x 8
## ticker name incept_date net_expense_rat~ net_assets_usd_~ pct_of_total_aum
## <chr> <chr> <date> <dbl> <dbl> <dbl>
## 1 IVV iShares~ 2000-05-15 0.03 306960. 13.2
## 2 ESGU iShares~ 2016-12-01 0.15 23893. 1.02
## # ... with 2 more variables: pct_of_subgroup_aum <dbl>,
## # rank_by_highest_total_aum <dbl>From the below analysis, it can be seen that the iShares Core S&P 500 ETF is 12 times larger than the iShares ESG Aware MSCI USA ETF. However, it can also be seen that the ESG expense ratio is 5 times higher than that of the regular iShare ETF, suggesting that it is much more expensive to run an ESG fund.
## # A tibble: 3 x 5
## name IVV ESGU regular_divided~ esg_pct_of_regu~
## <chr> <dbl> <dbl> <dbl> <dbl>
## 1 net_assets_usd_mn 306960. 23893. 12.8 7.78
## 2 net_expense_ratio_percent 0.03 0.15 0.2 500
## 3 revenue_mn 92.1 35.8 2.57 38.9How many ETFs were launched each year?
Furthermore, from the below graph, it can be concluded that the number of regular funds is growing at a much faster pace than that of the ESG ETFs.
Classifying the ETFs by country
Classifying the ETFs by the Sustainability characteristics ratings
We can see that the ESG funds are all of investment grade, mostly being AAA and above, with one ESG fund only rated BBB.
