Sustainable for all reasons

Armando Senra |17 août 2021

One of the more notable developments of this year has been the significant growth of sustainable (ESG) investing.

At the end of June this year, we’ve seen $3.2 billion in flows going into Canadian listed sustainable ETFs, already more than double the $1.4 billion in flows for 2020. Perhaps most notably, during the depths of the market turmoil in February and March sustainable ETFs saw $56 million and $621 million in inflows respectively, almost half their 2020 total.

Yearly net flows into Canadian listed sustainable ETF assets ($B)

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Source: Morningstar Research Inc. as of 6/30/2021. Based on estimated aggregate net flows of funds classified as a sustainable fund by prospectus. Morningstar introduced the Sustainable Attributes in December 2018. Flows and assets indicated in Asset Flows historically are based on each fund's Sustainable Attributes as of the Effective Date. Dates preceding December 2018 will indicate Sustainable Attributes based on today's data, even though the information didn't exist or apply to the funds at these past dates.

What’s driving this growth, and can it continue?

Why 2021 is a pivotal year for sustainable

As evidenced by record flows into sustainable strategies, we are seeing the early and growing signs of a shift in investor focus.

Sustainable investing was historically a values-based exercise — it has evolved into a mainstream investment risk and performance-based decision. Investors are understanding that sustainability related considerations such as climate change influence long-term returns, because they can have a significant impact on asset pricing and capital allocations.

Moreover, while investors are increasingly aware of the potential impact of climate-related risks on their portfolios, there is also more focus now on the “S” and “G” parts of ESG investing — social and governance. Companies that treat their employees well, encourage diversity, and contribute to the development of the communities where they operate in, tend to be better run companies and have the ability to recruit and retain the best talent. These companies typically have quality attributes such as strong balance sheets, stable businesses and a strong corporate governance. As a result, we believe higher ESG rated companies may add resilience to a portfolio.

In addition, we are seeing greater access to investment solutions, providing all investors with more choices when it comes to ESG investing. Investing sustainably for all but the largest investors used to be difficult given the limited number of accessible sustainable investment strategies. And rating a company’s ESG performance was proven difficult, as the data to assess companies was sparse and disparate.

Both trends are changing. As data has grown in abundance, it has led to more robust ESG indexes and an increase in availability across asset classes and strategies. And now there are sustainable funds for virtually every portfolio and objective. Since 2017, the number of sustainable ETFs listed in Canada has grown dramatically, from 3 to 63.1 At iShares, we have 17 Sustainable ETFs listed in Canada that offer investors a range of choices to help meet their needs and goals.

Under the hood with sustainable ETFs

When it comes to ESG solutions, there are two common approaches. The first is to remove companies with controversial business activities that have elevated sustainability risks or that do not align with investors preferences. The second is to incorporate ESG research to increase your exposure to companies better suited to manage sustainability risks. In that latter approach, the investor may seek a similar risk and return as the relevant broad market or is focused on the potential return opportunities presented by companies with higher ESG scores.

Summing it up

The surge in flows underscores changing investor preferences and a growing conviction in companies that may be better positioned to manage sustainability-related risks. The ESG Screened funds round out the choices for investors. No matter your objective, iShares’ platform of choice is providing investors the ability to put sustainability at the core of their portfolios.

For investors who seek to integrate a broad range of ESG considerations, explore our iShares ESG ETFs:

iShares ESG Aware ETFs iShares ESG Leaders ETFs iShares ESG Advanced ETFs
Focus on providing exposure to companies with high ESG ratings while maintaining market-like risk and return characteristics. They are designed for investors seeking ESG integration, without deviating too far from the broad market benchmark. Target exposure to higher ESG-rated companies in each sector while maintaining sector diversification and market coverage. They are designed for investors seeking to adopt a bottom-up approach to ESG-oriented security selection. Seek to provide exposure to companies with high ESG ratings while extensively screening out controversial industries that may pose elevated headline and ESG risks. They are designed for investors with a very high conviction view on ESG risks and opportunities, and/or a strong focus on climate-related risks.
Armando Senra

Armando Senra

Head of iShares Americas at BlackRock