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  • The first quarter of 2021 will probably

  • be best remembered for the Reddit rebellion,

  • when thousands of small US retail investors

  • piled into a failing video gaming company called GameStop.

  • However, it might also go down in history books

  • across the Atlantic, in Europe, as the quarter when

  • inflows into sustainable exchange

  • traded funds, otherwise known as ESG funds,

  • overtook all other ETFs for the first time.

  • Analysts think the driving force behind both phenomena

  • is a groundswell of public opinion

  • against the establishment, which is seen as having exploited

  • the underprivileged and left a trail

  • of environmental devastation in its wake.

  • ETF providers have seen an opportunity

  • to sell products that might assuage

  • those feelings of outrage and regulators have introduced

  • policies which have helped.

  • The result has been a jump in the number of ESG ETFs

  • and in assets under management, which

  • have shot up from around $45bn two years ago

  • to more than $260bn today.

  • But why are investors choosing ETFs rather than other kinds

  • of funds or single stocks even to invest according

  • to their ESG principles?

  • And are they really doing as much

  • good as they think they are?

  • Some people say ETFs are the worst

  • thing an investor could choose if they want to have

  • positive outcomes that is.

  • This is because the vast majority of ETFs

  • are for so-called passive products that

  • follow an index of stocks or other securities.

  • That index is a bit like a really strict shopping list.

  • Basically when you fill your shopping basket

  • you always have to get everything on the list

  • and you can't leave anything out.

  • And even if you sell ETFs shares,

  • you still have to have every item on the shopping list.

  • And what this means is you can't just get rid of a company

  • because you suddenly find out that it sources is all its

  • goods in Xinjiang labour camps, for example.

  • So while index tracking ETFs can be cheaper because managers

  • don't have to spend the money researching

  • the individual companies in that index,

  • it does mean that they can end up

  • with companies such as Boohoo, which

  • caused a scandal last year when it was discovered that they had

  • been exploiting their workers and employing them in very

  • poor working conditions.

  • ETF providers say they engage or, in other words,

  • talk to the companies that are in the indexes

  • that they invest in and can persuade

  • them to change their business practises if they

  • are concerning.

  • But this is nowhere near the power

  • that an active fund manager has because an active fund

  • manager can simply disinvest or sell

  • any company that it transpires is

  • engaged in unsuitable business practises.

  • Despite their drawbacks ESG ETFs are grabbing market share.

  • BlackRock's largest ever ETF launch,

  • which debuted with 1.25bn US dollars earlier this year,

  • aims to identify companies that would benefit from

  • the transition to a low-carbon world.

  • Smaller but equally compelling for the investors

  • that wish to find ways of doing good by investing

  • are these so-called thematic ETFs

  • that allow niche exposures to anything

  • from clean energy, minority empowerment, or even veganism.

  • ESG ETFs, in short, have been packaged

  • to allow us to invest according to our principles.

The first quarter of 2021 will probably

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Why sustainable ETFs are on the rise I FT

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    洪子雯 posted on 2021/05/04
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