Matter launches examination of the 50 largest sustainability-themed UCITs ETFs by AUM in order to understand whether sustainable branding equals sustainable outcomes.
The 50 largest sustainability ETFs are only fractionally better than their conventional parent indices
Copenhagen, Denmark (6 December, 2021) –
Examining the 50 largest sustainability-themed UCITS ETFs by AUM, a new report finds that each ETF exposes investors to vastly different potential outcomes. Most are only fractionally more sustainable than their non-sustainability focused parent indices. 4 of the 50 ETFs appear to be less sustainable than their parent indices, and broadly, the 50 ETFs do not expose investors to impact in the same way, nor to the same extent.
These are the key takeaways from a new research report examining the current state of sustainable finance entitled ‘A House Built on Sand - The 50 largest sustainability-themed ETFs, how they are misunderstood, and what is needed to make sustainable finance fit for purpose’, that has been published by Danish fintech company Matter.
The report follows a wave of critical questions that has been directed at ESG investments, as to what impact current “ESG”-themed investments is actually having on people and the planet, with criticisms around greenwashing dominating public discourse. According to the Global Sustainable Investing Alliance, sustainable investments now account for $35 trillion in global Assets Under Management, or roughly $1 out of every $3 managed professionally.
The report explains that the differences in outcomes are not reflected in publicly available information on these funds, making it challenging for investors to separate ETFs pursuing an ambitious sustainability approach, from those who are sustainable in name only. Moreover, they are not reflected in the figures and headlines circulating about the exponential growth in ‘ESG’ or ‘Sustainable Investing’, which detracts attention and momentum away from ingrained issues and attempts to solve them.
The report finds that although the way in which sustainability is integrated in the construction of an ETF impacts sustainability in a way which lends some insight to investors, a lack of transparency and standards means that there is currently no replacement for granular impact analysis on a fund by fund basis. The tools for this, although increasingly available, are currently not widely used, neither by investors nor the issuers of sustainably-branded products.
“The majority of sustainability-themed ETFs, especially those attempting to maintain a broad coverage, neither effectively minimise harm nor maximise positive impact,” said Niels Fibæk-Jensen, CEO at Matter. “Just look at their environmental impact for example - they expose investors to significant environmental harm compared to climate-focussed ETFs, whilst generating less renewable energy than their parent indices and therefore failing to drive the energy transition.”
Fibæk-Jensen continued, “The only way for sustainable finance to become fit for purpose is through a combination of greater regulation and standards which mandate transparency and granular disclosure, and, as the early teething problems that the EU SFDR is currently facing suggest, better tools and data to facilitate it.”
You can download the research in full by clicking 'Download Report'