Whether judging by inflows, new product launches, or other data points, it’s clear that sustainability is a rising priority for many investors.
On the other hand, it’s not uncommon for investors to prioritize overall returns. Those are the findings in a Charles Schwab U.K. online survey of 1,000 individual investors in the U.K. An obvious takeaway is that investors want strong returns, and if performance is accompanied by solid sustainability principles, it’s an added benefit.
However, data also indicate that investors want more virtuous approaches, and that could spell opportunities for exchange traded funds, such as the American Century Sustainable Equity ETF (ESGA) and the American Century Sustainable Growth ETF (ESGY).
“It turns out that 71% of the survey’s respondents also think companies with good sustainability strategies make good investments, and that 44% say they consider environmental, or social, and governance factors when making a new investment,” notes Morningstar’s Jon Hale.
Specific to ESGA and ESGY, that duo of actively managed environmental, social, and governance (ESG) ETFs could be at the right place at the right time due to favorable demographic trends.
The number of younger investors interested in sustainable strategies “is considerably higher for millennial and Generation Z investors, with 55% of the former and 56% of the latter saying they regularly consider ESG factors. Baby boomers were not as interested, with only 28% saying they regularly consider ESG,” adds Hale.
For its part, ESGA turns two years old in July and has $142.6 million in assets under management. That’s impressive when considering that the fund has only recently started generating buzz and when accounting for the fierce competition in the ESG ETF space.
Including ESGA, plenty of ESG ETFs are off to impressive starts and commanding more assets from investors. Good news: There are more avenues for growth. Those include increasing levels of sustainable investing education and the potential for ESG funds to be included in more 401(k) plans.
“Offering ESG choices in 401(k) plans and hearing more from advisors would help investors act on their sustainability preferences,” concludes Hale. “But I think the authenticity of advisors and asset managers is really the key factor. It’s not easy for investors or consumers to evaluate a product’s sustainability claims. That’s why sustainable funds need to be much more transparent about the specific sustainable investment approach or combination of approaches they employ. Rather than simply list their holdings, they need to provide the ESG or sustainability thesis for their holdings. Few funds are doing these things.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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