SECTION 3 : ESG ETFS
support for ESG has been based on interacting with clients to build products based on their demands .
“ We are certainly seeing some interest ,” he said . “ Trying to get your clients on board also involves them getting their internal stakeholders on board , it takes a long chain reaction of discussions on different levels .
“ The reputation of the index provider is also very important . It is like getting a car and thinking about the mechanic who is going to look after it later on .”
More adventurous ESG
Thomas remained unconvinced by the filtered beta approach to ESG . First , he said it is more useful to look at ESG ’ s three components in isolation , given there is more consensus on environmental issues and therefore the “ product quality and philosophy ” of a climate ETF is more effective than broad ESG .
Overall , rather than cornering part of a vanilla index , Thomas argued a better route for ESG would be a thematic approach as this is the only way to direct assets into “ genuinely interesting and innovative products ” that will facilitate goals such as the green energy transition .
“ The thematic approach is easily the most interesting because people are taking risks ,” he added . “ However , it can be hypedriven and populist meaning launches can follow trends in the media but it gives you a fighting chance of outperforming because you are hitting active share .
“ You get a panel of experts picking a stock universe on something you do not know that much about while an index provider can make semi-sensible decisions on size constraints and rebalancing . That is an innovative product .”
Another approach he supported would be influencing company behaviour by choosing which bonds to buy .
In an impact bond context , Walsh pointed at to firm ’ s UBS ETF Sustainable Development Bank Bonds UCITS ETF ( MDBU ), which captures issued by bodies such as the World Bank , African Development Bank and European Bank for Reconstruction and Development .
Thomas agreed with the concept but highlighted the ETF has $ 1.5bn assets under management ( AUM ) and is the only one of its kind in Europe . Therefore , this and other approaches in sustainable fixed income could be the areas to watch in ESG going forward .
ESG Unlocked : Europe out in Front October 2022 21