European asset managers ramp up provision of sustainable ETFs

Europe’s asset managers are continuing to ramp up their provision of sustainable index and exchange traded funds, launching 33 of these products in the first quarter, Morningstar data show, compared to 29 in the same period last year.

The frenetic activity at the beginning of this year follows a string of launches in 2020 from Europe’s dominant providers.

In 2020, Lyxor launched 18 sustainable ETFs in Europe, more than any other manager. Amundi and iShares, the next most prolific in terms of new sustainable fund provision, launched 16 and 13 new sustainable funds respectively, according to Morningstar.

Kenneth Lamont, senior analyst for passive strategies at Morningstar, said providers had “scrambled to expand their sustainable ETF menu” as assets poured into sustainable funds last year.

This article was previously published by Ignites Europe, a title owned by the FT Group.

“The diverse range of approaches to sustainable investing, combined with the almost infinite number of ways they can be mixed and matched with different markets, asset classes, and investment styles, has fanned the flames of product development,” he says.

This comes as managers have been preparing for the introduction of the EU’s Sustainable Finance Disclosure Regulation, which came into force on March 10.

Under the rules, fund providers must sort each of their products into a different sustainability category depending on its characteristics.

Article eight funds must have environmental or social characteristics among other objectives, while article nine funds must have sustainable investment as their explicit objective.

Analysis by Ignites Europe last month showed that Europe’s largest asset managers had on average categorised only about 20 per cent of their fund range as sustainable.

BlackRock’s iShares, Vanguard and Legal & General Investment Management all registered new sustainable ETFs in January with the Central Bank of Ireland.

LGIM launched a trio of ETFs earlier this month aimed at investors seeking equity income with quality screens and responsible exclusions.

The L&G Quality Equity Dividends ESG Exclusions UK, L&G Quality Equity Dividends ESG Exclusions Europe ex-UK and L&G Quality Equity Dividends ESG Exclusions Asia Pacific ex-Japan Ucits ETFs were listed on the London Stock Exchange.

This follows the launch of the L&G ESG Green Bond UCITS ETF and L&G Hydrogen Economy UCITS ETF in February.

Aanand Venkatramanan, head of ETF investment strategies at LGIM, said the company was likely to launch more article eight and nine funds in the near future.

All of LGIM’s ETF launches provide ESG exclusions as a standard.

Meanwhile, iShares registered two ESG ETFs with the CBI in January: the iShares MSCI UK IMI ESG Leaders UCITS ETF, which launched on March 23, and the iShares MSCI Pacific ex-Japan ESG Leaders UCITS ETF, which is still in the pipeline.

Vanguard registered two passive fixed income ESG funds with the Irish regulator at the start of the year: the Vanguard ESG Global Corporate Bond UCITS ETF and Vanguard ESG Global Corporate Bond Index Fund.

Morningstar expects providers to introduce more Paris Agreement-aligned core equity ETFs in 2021 following launches by Amundi, Lyxor and Franklin Templeton last year.

Another trend that is expected to continue is the growth of the ESG fixed income space.

Out of 88 sustainable ETF launches last year, 19 were sustainable bond ETFs, according to Morningstar. All but three of these were focused on the corporate bond market, said Lamont.

Lamont added that ESG scoring for government debt had several challenges, but he still expected to see growth.

“We also anticipate more launches targeting the green and climate bond segments as those markets continue to mature,” he said.

Lamont said ESG funds with a climate twist, such as HSBC's Sustainable Equity range, would remain a trend in 2021, as well as thematics targeting clean energy or decarbonisation technologies.

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at igniteseurope.com.

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