ESG 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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