SECTION 3 : ESG ETFS
State of the market : ESG ETFs remain resilient
ETFs labelled either Article 8 or 9 under the Sustainable Finance Disclosure Regulation ( SFDR ) are likely to remain popular despite underperforming so far this year
Author : Jamie Gordon
Europe ’ s ESG ETF inflows will likely remain resilient in 2022 despite almost three-quarters of products failing to beat vanilla equivalents so far this year , showing performance is secondary for those seeking out more sustainable allocations , according to Bloomberg Intelligence .
By the end of August just 27 % of ESG ETFs were beating non-ESG benchmarks , down from 47 % last year and considerably lower than the majority 63 % beating vanilla indices in 2020 . Of this number , emerging market and eurozone equity ESG ETFs are front of the pack , with 70 % and 64 % outperforming , respectively , over the past three years . In the last year , more than 100
Outperformance rates by SFDR Article
ETFs started integrating sustainable criteria , which has done little for their performance but meant their “ inflows jumped ”, Bloomberg Intelligence said .
Going forward , how ESG strategies are categorised under the EU ’ s Sustainable Finance Disclosure Regulation ( SFDR ) will be a key focus in Europe . In 2022 , the ‘ light green ’ SFDR Article 8 ETFs have outperformed their ‘ dark green ’ Article 9 peers while housing 15 % of European ETF assets versus 4 % for Article 9 .
Their fortunes may reverse with the arrival of SFDR ‘ phase two ’ next year , however , as more granular reporting requirements reveal Article 8 imposters . Morningstar data show as much as 23 % of current SFDR Article 8 members do not meet their criteria for an ESG fund .
n Article 8 n Article 9
by the end of August 2022
27 % ESG ETF products beating non-ESG benchmarks
2021 YTD 1 Year Sticky flows to ESG ETFs
14000 12000 10000 8000 6000 4000 2000
0 -2000 -4000 n Article 8 n Article 9
2018 2019 2020 2021 2022
18 ESG Unlocked : Europe out in Front October 2022