Most new ETFs listed in Europe could come with an ESG slant

European markets have been at the forefront of the socially responsible investment initiative, with the majority of exchange-traded funds listed in Europe over the next year set to incorporate environmental, social and governance principles.

According to a global survey by PricewaterhouseCoopers, 80% of around 60 ETF providers in Europe say that more than half of their planned products will invest with an ESG slant, the FinancialTimes reports.

PwC’s report, which forecast the ETF market to double globally to $20 trillion by 2026 from $10 trillion currently, highlighted growing pressures on European providers to ‘they invest with an ESG perspective due to growing social responsibility, investor demand and regulations. .

Marie Coady, global ETF leader at PwC, also added that product innovation in the ETF space was at an “all-time high”, with the majority of innovation being driven by investor demand for ETF-related products. the G.

“People are creating more bespoke indices and tracking areas that investors really, really care about, which drives more innovation and moves ETFs away from the historical passive indices that we would have seen,” Coady told the Financial Times.

Participants in Europe feel “the strongest pressure for change”, according to the report.

Following European ETF markets, in Canada, 46% of providers indicated that more than half of their products will also include an ESG focus. Meanwhile, ESG-related ETF launches in Asia and the US are relatively lower at 38% and 28%, respectively.

The PwC report also noted that in Europe, ETF providers face greater regulatory hurdles, including a “plethora of ESG designations and reporting requirements in different markets.” Specifically, compliance with Article 8 and Article 9 of the new EU Sustainable Finance Disclosure Regulation could pose challenges for ETFs that fully replicate broad capitalization-weighted indices. or themes.

The report also warned that many still struggle to get reliable and consistent data for ESG ratings and ratings, as there is no unified system in place.

“There are currently implementation challenges for index ETFs with SFDR, but aligning regulations for managers with aligning regulations for index providers will certainly give ETF providers the opportunity to get the data they need for ETFs must meet their pre-contractual and periodic disclosure requirements under the SFDR,” Coady added.

For more news, insights and strategy, visit the ESG channel.

Mary I. Bruner