ESG investing? Demand for ASX ethical ETFs is on the rise

Ethical ETFs are rising in popularity for ASX investors, especially millennials, keen to tap into ESG concerns. Here’s what the data shows

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ethical investing in ASX shares represented by road signs stating corporate ethics and honesty

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Yesterday, we looked at how ASX exchange-traded funds (ETFs) are growing ever more popular for investors. That’s especially the case with millennial and Gen Z investors under the age of 40. 2020 saw record fund inflows into ETFs, and 2021 looks to be continuing this trend.

ETFs used to be dominated by pure, broad-based index funds, like those tracking the S&P/ASX 200 Index (ASX: XJO). Or even overseas indexes like the US S&P 500 Index (INDEXSP: .INX). These funds are still very popular with ASX investors. But new research from ETF provider BetaShares indicates that this pattern might be shifting.

BetaShares’ research shows that the ETFs investors sought last year were dominated by high-growth funds. This popularity was particularly evident during the worst throes of the pandemic. 26% of investors reportedly ranked high growth as their most desired ETFs over the period. Another 24% of ETF investors were looking at sector-specific funds, such as those covering oil, tech shares, or gold.

But the research also showed that 20% of investors were looking for more socially responsible investment products. When looking at younger investors, BetaShares found that number rose to 28% when just the millennial demographic was asked.

Investing ethically

Ethical ETFs, which are sometimes described as ‘ESG-focused’ (for ethical, social and corporate governance), only invest in companies that do not operate or do business in ‘unethical’ operations. These differ from interpretation to interpretation.

But the companies most often excluded from ESG funds are those who trade in alcohol, tobacco, firearms, and fossil fuel extraction. Other ‘unsavoury activities like uranium, gambling or human rights violations are also often included in these ESG criteria.

BetaShares CEO Alex Vynokur had this to say on the research’s findings:

The increased interest in socially responsible investing coincides with widespread and growing concern around the environment and global warming… The COVID-19 pandemic has also brought social and governance considerations strongly into focus. We think this trend is likely to continue as the global economy emerges from the pandemic, and investors favour portfolios and companies whose practices align with their ethical values…

Our research shows that investors are looking to allocate a quarter of their portfolios to socially responsible funds. We believe ethical ETFs will continue to outpace the growth of traditional ETFs and more ethical products will be launched in 2021 to tap into that demand.

There are several ethically-focused ETF listed on the ASX. Some of the most popular include the BetaShares Global Sustainability Leaders ETF (ASX: ETHI) and the Vanguard Ethically Conscious Australian Shares ETF (ASX: VETH).

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