According to the most recent Morningstar data, ESG strategies will dominate the European ETF market in 2022.
According to the research firm's 'Q4 2022 European ETF Asset Flows Report,' ESG products received 65% of overall flows in 2022.
This is up from 53% in 2021, despite ESG underperforming in the mainstream due to difficult market conditions for sustainable products.
Assets in ESG ETFs and exchange-traded commodities (ETCs) increased from €231.6 billion in 2021 to €248.8 billion in 2022.
As a result, ESG investments now account for 18.8% of total assets in ETFs and ETCs, up from 16.7% the previous year.
Investment in new ESG products and the repurposing of existing conventional funds as ESG funds have spurred the surge in ESG investment.
Jose Garcia-Zarate, associate director of passive research strategies at Morningstar, said: “The trend in favour of ESG has strengthened notably in the past three years, Annual flows into ESG products as a proportion of total flows into the ETF and ETC market ballooned to a record high of 65% in 2022 from 14% in 2019.”
According to Morningstar data, equities ESG ETF flows declined in the fourth quarter to €7.8 billion from €10.1 billion in the third quarter.
Despite this, overall assets in equities ESG ETFs climbed to €188.1 billion in 2022 from €177.4 billion in 2021, accounting for 21.3% of total equity ETF assets in Europe.
Bond ESG ETF assets increased as well, rising from €54.1 billion in 2021 to €60.7 billion in 2022.
Bond ESG ETF holdings already account for 19.6% of all bond ETF assets in Europe.
The rise of bond ESG ETFs follows the trend of investors increasingly preferring bond ETFs over exchange-traded products, as discovered by BlackRock iShares in December 2022.
By fLEXI tEAM