Investors expect further expansion of the European ESG ETF market in 2023

esg, etfs, european, market Investors expect the expansion of the European ESG ETF market to continue in 2023, revealed a survey by BNP Paribas Asset Management, the investment arm of BNP Paribas.

Interest in low-carbon, Paris-aligned benchmark (PAB) strategies and renewed confidence in sustainability labels emerged as top trends from the second half of 2022 in the European environmental, social, and governance (ESG) exchange-traded fund (ETF) barometer survey.

Sixy-six percent of investors considered current ETFs to show real sustainability benefits, such as a positive impact on ESG issues, per the European ESG ETF barometer survey. This opinion received maximum support from 74% of Swiss investors against 54% of Italian investors and 85% of pension funds compared to 56% of asset managers.

The biannual European ESG ETF barometer survey, first conducted in April 2022, tracks the outlook and practices of European institutional and intermediary investors in sustainable investment in index strategies.

ESG dominated European 2022 ETF flows

Interest in low carbon emissions reduction or PAB strategies rose from 14% to 36% sharply over the past six months, but not without regional differences.

The survey found 48% of Swiss investors were particularly interested in this theme compared to 20% in France.

Active dialogue to support companies in their transition emerged as a key theme, with 67% of investors considering ESG voting and engagement "robust".

Interest in themes like battery innovation, hydrogen and the electrification of transport rose significantly by 312.5%.

ESG becoming central to fund finance

Sustainability labels and certification (18%), followed by the manager's ESG credibility and expertise (15%) and tracking error against the benchmark (14%), were the three most valued criteria for ESG ETF selection.

The survey also captured the declining trends from the second half of 2022. For example, 81% of investors – dipping from 91% in the previous survey – expected ESG ETF assets under management to remain stable or grow over the next 12 months.

The UK investors were the most optimistic (96%), while investors in Germany (68%) were least optimistic, showed the findings.

Investor demand slowed for ETFs investing in the circular and blue economies compared to the previous survey. In contrast, the survey found a growing demand for low-carbon and alternative energy.

Lorraine Sereyjol-Garros, global head of development ETF & Index solutions at BNP Paribas Asset Management, commented: "In this changing environment, sustainable index strategies continue to attract significant inflows, particularly those aligned with the objectives of the Paris Agreement."

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