Global survey of asset owners reveals rising trend of interest, strong outlook for smart sustainability
With nearly a trillion dollars in global assets and growth that’s outpacing the broad exchange-traded product space, it’s probably safe to say that the smart-beta ETF space is coming of age. And with more investors now comfortable with the strategies, it’s no surprise that they’re starting to look at its potential through another lens.
According to a new survey of global asset owners conducted by FTSE Russell in January and February, those using or evaluating smart-beta strategies are increasingly anticipating that they’ll apply ESG considerations to their smart-beta strategy of choice, with 58% of respondents saying so this year compared to 44% in 2019.
The growth was more pronounced among asset owners in North America, going from 17% of last year’s respondents to 42% this year saying that they expect more ESG considerations to come into play within their preferred smart-beta strategy.
When asked what themes they are focused on, nearly two thirds (64%) of all those who anticipate applying ESG/sustainability to their smart-beta strategy cited climate/carbon concerns. Fifty-nine per cent said they’re looking at broader environmental considerations like pollution, resource use, water conservation, and protecting forests. Governance and social themes were also widely cited, with 55% of sustainability-minded investors saying that they’re considering those factors.
While green advocacy and a focus on governance have tended to take priority among ESG investors in past years, the global outbreak and more recent political trends have led to a heightened level of attention on social issues like health and safety, pay inequality, and labour practices.
“The first half of 2020, shaped by a number of factors including the COVID-19 pandemic and increased focus on social justice, is leading asset owners to re-evaluate investment strategies and priorities,” David Harris, group head of Sustainable Business, London Stock Exchange Group at FTSE Russell, said in a statement.
The interest in integrating ESG factors into smart-beta strategies has also come amid decidedly lower interest in negative screens: 48% of participating asset owners this year said they’re using or considering the approach, in contrast to 64% last year.
Positive selection and re-weighting holdings based on ESG/sustainability criteria, meanwhile, both became more popular. The proportion of respondents weighing or pursuing a re-weighting approach surged from 36% to 55%, while those citing positive selection increased from 22% to 30%.
The survey also found a robust outlook for smart sustainability, as 47% of respondents to this year’s survey said they expect to raise their allocation to smart-beta ESG over the next one to two years, roughly matching the 44% who said the same in 2019.
“Recent events have heightened investors’ focus on environmental and social factors, international cooperation and their potential impact on the financial markets,” Harris said. “Given these large-scale shifts, combining smart beta with climate and sustainability priorities could become an even bigger trend for asset owners, as evidenced by this survey.”
