ESG dominated European 2022 ETF flows

ESG, ETF, european, europeESG strategies dominated the ETF market in Europe in 2022, according to the latest data by Morningstar.

The research provider’s ‘Q4 2022 European ETF Asset Flows Report’ revealed 65% of total flows were directed to ESG products in 2022.

This increased from 53% in 2021, even though ESG underperformed in the mainstream due to challenging market conditions for sustainable products.

Throughout the year, assets in ESG ETFs and exchange-traded commodities (ETCs) grew from €231.6 billion in 2021 to €248.8 billion in 2022.

As a result, ESG investments now represent 18.8% of total assets invested in ETFs and ETCs, up from 16.7% the year prior.

The increase in ESG investment has been driven by investment in new ESG products and the repurposing of existing conventional funds as ESG funds.

Jose Garcia-Zarate, associate director of passive research strategies at Morningstar, said: “The trend in favour of ESG has strengthened notably in the past three years,

Annual flows into ESG products as a proportion of total flows into the ETF and ETC market ballooned to a record high of 65% in 2022 from 14% in 2019.”

Morningstar’s data also revealed flows in equity ESG ETFs decreased in the fourth quarter to €7.8 billion from €10.1 billion in the third quarter.

Despite this, total assets in equity ESG ETFs increased to €188.1 billion in 2022 from €177.4 billion in 2021 and already represent 21.3% of total assets invested in equity ETFs in Europe.

Total assets in bond ESG ETFs also grew - from €54.1 billion in 2021 to €60.7 billion in 2022.

Assets in bond ESG ETFs already represent 19.6% of total assets invested in bond ETFs in Europe.

The increase in bond ESG ETFs continues the trend of investors increasingly choosing bond ETFs over exchange-traded products, found by BlackRock iShares in December 2022.

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