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Mondial Chart of the Week: Can ESG Funds Sustain These Flows?📈

02 May 2021


Source: Bloomberg & Momentum Global Investment Management

What this chart shows

This chart shows quarterly net flows into sustainable or ESG (environmental, social, governance) equity ETFs over the past four years. There has evidently been a stark increase, from $2.5bn of net inflows in Q1 2017 to a new record of over $40bn in Q1 2021, reflective of much increased investor awareness of, and desire for, positive ESG factors within client portfolios.

Whilst equity ETFs as a whole have enjoyed positive net flows over the period the extent of this specific rise into ESG ETFs indicates much greater (and still growing) interest in sustainable funds than we have witnessed in the past.

Why this chart is relevant

This reflects the changing investor sentiment towards responsible and sustainable investing, notably over the past 18 months. The coronavirus pandemic certainly accelerated the trend, particularly with respect to social issues such as employee health and safety. However, awareness of the environmental impacts of business activities has also notably increased. This has fuelled huge demand for a lot of renewable energy names, for example. The greater investment into ESG funds has led some to question the potential formation of an ‘ESG bubble’, which investors will need to be mindful of by watching for signals of stretched valuations. Whilst that might be extreme at this stage, it is crucial that investors never lose sight of the fundamentals. It is easy to be swayed by positive sustainable messaging or bold pledges made by companies and business fundamentals might not necessarily stack up. We believe an integrated approach, whereby one considers the ESG risks, or indeed opportunities, as part of a broader appraisal of company fundamentals is the best approach.

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