LDEM iShares ESG MSCI EM Leaders

By Michael Wursthorn 

Money is pouring into exchange-traded funds that bill themselves as socially conscious.

This year investors have put a record $27.4 billion into ETFs traded in U.S. markets that say they focus on environmental, social and corporate governance, or ESG, practices, according to data from FactSet, doubling the size of the sector.

The surge suggests ESG investing has staying power, answering those who had questioned whether investors would give priority to goals such as promoting clean energy over simply picking the best-performing stocks regardless of companies' principles. Expectations for new legislation aimed at combating climate change under a Biden administration are likely to stoke demand for ESG funds over the coming years, and several asset managers are rushing to meet that demand.

Asset managers have launched 31 ESG-related ETFs so far this year, nearly double last year's sum and bringing the total number of products in the U.S. to more than 100, according to Elisabeth Kashner, director of ETF research at FactSet.

BlackRock Inc. has been among the most prolific, recently rolling out ETFs that are based on the S&P 500 and other indexes but exclude companies involved in the fossil-fuel, tobacco and weapons industries. Other asset managers, including Gabelli Funds, plan to introduce additional funds.

Part of the surge has to do with the exceptional returns of a handful of funds driven by stay-at-home stocks and shares of other companies that have climbed during the coronavirus pandemic, said Todd Rosenbluth, head of ETF and mutual-fund research at CFRA. The Nuveen ESG Mid-Cap Growth ETF, for example, has risen 42% this year thanks to such holdings as the communications software makers Twilio Inc., whose shares have more than tripled, and Slack Technologies Inc., which is up 87%. The S&P 500 index, in comparison, has climbed 14%.

Other thematic funds that touch on ESG have also notched big gains. The iShares Global Clean Energy and the KraneShares MSCI China Environment Index ETFs have doubled this year thanks to holdings including alternative- energy producer Plug Power Inc., whose shares are up eightfold, and Chinese electric vehicle startup Nio Inc., which is up 10-fold.

Covid-19 has reshaped the investment landscape, with investors piling into big technology stocks, many of which share characteristics that make them darlings of socially responsible investing. In addition, several killings by police officers that sparked civil unrest have amplified calls for greater social responsibility within investing.

A BlackRock survey of 425 asset managers who oversee some $25 trillion in assets found that they plan to double their sustainable assets under management to an average of about 37% of their portfolios over the next five years.

The iShares ESG MSCI EM Leaders ETF, a BlackRock fund that launched in February and focuses on socially responsible companies in emerging markets, has amassed more than $800 million in assets. Meanwhile, State Street Corp.'s SPDR S&P 500 ESG ETF, which draws on the S&P 500 benchmark for its selections, has attracted nearly $90 million since its rollout in July.

"The growing supply of low-cost ESG and thematic ETFs the last few years positions the industry for additional asset growth," Mr. Rosenbluth said.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

December 16, 2020 05:44 ET (10:44 GMT)

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