Passive investing a growing trend in sustainable investment
The development of sustainable investing is a growing trend within passive investing. S&P Dow Jones Indices has added to its range of sustainable products with the launch of its Sustainability Europe Diversified High Beta High Dividend index, containing 50 high-yielding, high-beta companies within its Sustainability Europe Diversified index. The product has been licensed to UBS for development. The most popular index provider for sustainable or SRI-tracking vehicles appears to be MSCI, with Amundi launching two index funds and an ETF in May that track the MSCI Low Carbon Leaders index. Figures from MSCI suggest there has been a surge in demand for ESG data and indices.

It is unsurprising that passive investing is gaining more traction amid such volatile market conditions, and a growing trend within this space is the development of sustainable investing vehicles.

Sustainable investing – be it ethical, environmental, social and governance (ESG), or socially responsible investing (SRI) – is becoming more prominent among investors, particularly the younger generations.

The Global Climate Change Summit in Paris at the end of this month looks set to ensure sustainability remains in the headlines.

But Andrew Walsh, head of UBS exchange-traded fund (ETF) sales, acknowledges “passive SRI is still quite a specialist silo”. He says about 95 per cent of those he speaks to would not specifically have an interest in SRI ETFs, but he adds “those that do are very interested”.

UBS offers eight sustainable or SRI-related ETF products, seven of which are equity-related, while the most recent launch is a fixed income product tracking the Barclays MSCI US Liquid Corporate Sustainable index.

Mr Walsh says: “We have about £300m in total across these eight products. Our MSCI North America Socially Responsible [tracker] has £102m in assets under management, and the MSCI World Socially Responsible product has £63m.”

Manooj Mistry, head of exchange-traded products and institutional passive, Europe, Middle East and Africa, at Deutsche AWM, says the interest it has seen in terms of ethical investing “has tended to be in the form of bespoke passive mandates”.

He explains: “What constitutes an ethical investment can be quite subjective from investor to investor, so a generic filtering methodology tends to find a limited audience, which makes producing on-the-shelf products like an ETF tracking an ethical benchmark difficult. The success we’ve had has been in the form of bespoke institutional mandates or mutual funds for large clients that have their own ideas on ethical filtering.”

But with more index providers launching sustainable, ethical or SRI indices, access to these products looks set to grow.

Earlier this month, S&P Dow Jones Indices added to its range of sustainable products with the launch of its Sustainability Europe Diversified High Beta High Dividend index, containing 50 high-yielding, high-beta companies within its Sustainability Europe Diversified index.

The product has been licensed to UBS for development, with head of investment strategies structuring Xavier de La Porte du Theil noting: “Investor interest in sustainability has grown considerably in recent years, driven by the aspiration to make a positive impact and the belief that sustainability has become a factor of performance and risk mitigation.

“The characteristics of the Sustainability Europe Diversified High Beta High Dividend index make it an attractive [proposition] for both income and growth-seeking structured products.”

But the most popular index provider for sustainable or SRI-tracking vehicles appears to be MSCI, with Amundi launching two index funds and an ETF in May that track the MSCI Low Carbon Leaders index.

Figures from MSCI suggest there has been a surge in demand for ESG data and indices. It notes equity ETF assets tracking MSCI ESG products increased almost 30 per cent to $1.8bn (£1.2bn) this year. Assets have more than doubled since December 2013, rising by 140 per cent, with 22 now ESG ETFs tracking MSCI indices.