ESG ETF assets surge in 2019
Worldwide exchange-traded funds focused on environmental, social and governance issues had more than $13.5 billion in total assets under management at the end of August. The latest AUM reading from Morningstar is up more than three times since the beginning of the year, with much of that growth coming from iShares ESG MSCI USA Leaders ETF and an Xtrackers fund focusing on the same index, both of which currently stand as the largest ESG ETFs.
ESG-focused ETFs are still a very small part of the ETF pool; however, their recent exponential growth is a sign that investors are taking ESG more seriously, particularly as their long-term track records show similar risk-return profiles to the standard market indexes from which they derive.
One concern with ESG portfolios is that they hold fewer companies than their non-ESG counterparts, or have less diversified sector or country allocations and make them relatively more risky. Arguments against this stem from the very basics of ESG investing: The real investment risks lie in companies with poor environmental, social and governance practices, and eliminating those from the portfolio would benefit the investor. Another concern centered around the question of what is more preferred, better portfolio returns or more responsible investing? Evidence is beginning to show that investors can have their cake and eat it, too.