Morgan Stanley issued a research report today, highlighting the growing role of ETFs in investors’ ESG and sustainable investing choices. The report points out that ETFs have become one of the primary instruments investors use to pursue ESG-themed investments, and highlights research suggesting the ESG ETF market could grow to as large as almost $600 billion within the current decade.
Some of the key highlights from the report include:
- Growth. Morgan Stanley reports that ESG ETF AUM has grown 7x since June 2017. ESG ETFs now represent 1.7% of the overall ETF market, up from only 0.3% three years ago. Morgan Stanley cites iShares forecasts that project further market growth of 2.6x to 2024 and 6.7x to 2029 (~$230bn and ~$580bn respectively) ,vs. $87bn as at 1H20. Cumulative flows into ESG ETFs since the beginning of 2019 have reached $60 billion.
- Increasing Prominence. ETFs have grown to approximately 8% of total ESG holdings, according to the research, compared to less than 2% in 2017.
- Sector representation. Tech company securities are the most widely held by ESG ETFs, representing 19% of AUM, followed by financial services at 15%, and healthcare at 14%. Real Estate, Energy and Utilities are the least widely held.
- Asset class. According to the report, 89% of ESG ETF AUM is equity-focused, with 11% fixed income focused. The report points out, however, that growth is faster in fixed income, with AUM increasing 5.5x since 2018, compared to 4x for equity ESG ETFs.
- AUM by region. Europe is the largest market for ESG ETFs, accounting for 60% of AUM, with North America at 40%.