Wealth managers are increasingly using ETFs to incorporate ethical and responsible investing, flagging that this strategy will eventually substitute the actively-managed part of their portfolios.
More than half (55%) of the global 191 institutional investors, and asset and private wealth managers in the EDHEC-Risk Institute's annual survey are using ETFs to gain an environmental, social and governance exposure. Compared to 2019 and 2011, this move has risen by 12% and 33% respectively.
Among the investors that use ETFs to invest ethically, a large number expressed a positive satisfaction rate (87%) compared to a year ago whereby only a third (33%) were happy with the decision to use inexpensive means to gain the exposure.
Interestingly, 70% of investors plan to replace active managers and increase their ETF allocation.
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EDHEC-Risk Institute director Lionel Martellini said the findings confirm that ESG investing has become a key force in the industry, and that ESG exposure can be achieved not only via active managers, but also via passive investment vehicles.
Cost and the quality of replication still remain the two main drivers for selecting ETF providers, Martellini said, but half of the respondents would like to see further developments in SRI/ESG-based ETFs and/or low-carbon ETFs.
Many asset managers (45%) favour a best-in-class (positive screening) approach to SRI/ESG implementation over the thematic approach (30%) and the negative-screening approach (25%).
The majority of respondents (57%) identify the E (environmental) as the most important dimension of ESG, followed by the G (governance) at 36%, while the S (social) ranks lowly at 7%, he said.
Investor said the two main reasons why they incorporate ESG into their investment decisions is to allow for a positive impact on society (65%) and reduce long-term risk (58%). However, they do not want this to be done at the expense of weaker performance.