ESG ETF demand falls to decade low
Demand for ESG ETFs has declined, with Global X reporting that the popularity of ESG funds is at the lowest level since 2014.
In its landscape report for the first half of 2024, the ETF provider said demand for ESG products is at a decade low.
It said: “Despite the undeniable significance of ESG factors in both business practices and personal consumption, investor dollars are not drumming to the same tune. ESG and sustainable investing has taken a back seat and recently experienced a decline in momentum.
“With the decline in ESG momentum, some may ponder if it was merely a passing trend that peaked during the COVID-19 pandemic. Given the cyclical nature of trends, it seems ESG has handed the baton to the next hot topic in artificial intelligence.”
There is also a year-long wait for a sustainable ETF launch this year – the Russell Investments Sustainable Global Opportunities Complex ETF which launched in April. This is the firm’s first global equities ETF in Australia.
The product launch brought the total number of listed sustainable funds to 45, which cumulatively held $111 billion or 5.6 per cent of funds under management in the June 2024 quarter.
Research from Adviser Ratings found Australians are keeping their sights set on safeguarding wealth as opposed to focusing on responsible investing, with a survey of 2,100 Australians finding only 38 per cent are considering ESG factors in their investment.
“This figure is indicative of a broader sentiment shift among consumers who are increasingly prioritising immediate financial stability and long-term wealth protection over ESG considerations in a cost-of-living crisis,” Adviser Ratings said.
In July, a quarterly Morningstar global ESG fund flows report found US$800 million ($1.2 billion) was lost from Australian and New Zealand sustainable funds compared to inflows of US$27 million in the first quarter.
This was driven almost entirely by outflows from active strategies as passive sustainable funds saw US$5 billion in net new money. The outflows led to assets held in sustainable funds falling by US$300 million to US$30 billion as of 30 June 2024.
The wider fund management space has also been pulling back in the sustainable space due to concerns about a greater ASIC enforcement on greenwashing.
JP Morgan Asset Management (JPMAM) announced in July that it would close its two sustainable infrastructure funds, which included an active ETF, as the products had “failed to gain traction” in the Australian market.
Meanwhile, Schroders announced changes to its sustainable funds, with the Sustainable Global Core Fund being renamed as the Global Core Fund.
Explaining the change, Schroders said the criteria for sustainable labelled funds, both in Australia and abroad, had reached “significantly higher standards” since 2020 when the fund was renamed to the Schroder Sustainable Global Core Fund to better reflect the increased level of ESG integration and more stringent exclusions that had been incrementally adopted at that time.
AUTHOR
Laura Dew
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