After being a hot topic for all investors and ETF promoters in 2021 and 2022, it looks like sustainable investing has fallen out of focus for European investors and the ETF industry in 2023. Nevertheless, despite the lack of headlines on sustainable investing, the industry has evolved over the course of 2023. After the publication of the much stricter than expected regulatory technical standards (RTS) in Q4 2022, the European ETF industry faced a wave of reclassifications of ETFs when it comes to their assigned SFDR article. The clarifications by the European Commission on the interpretation of the Sustainable Finance Disclosure Regulation (SFDR, published on April 6, 2023), enabled the industry to launch new products and to reclassify existing ones if appropriate. But what did the European ETF industry look like from an SFDR perspective at the end of December 2023?
Here are the facts:
According to the Lipper database, the majority of assets under management (€1,189.4 bn or 76.05%) were held by ETFs assigned to article 6 of the SFDR, while €354.9 bn or 22.69% of the overall AUM were held by ETFs assigned to article 8 and €14.2 bn or 0.91% were held by ETFs assigned to article 9 of SFDR. Since the Lipper database does also include ETFs which are not domiciled in the EU it is no surprise to witness that some products have no SFDR assignment. Overall, these products accounted for €5.5 bn or 0.35% of the overall AUM in the European ETF industry.
As for fund flows, it was no surprise that ETFs assigned to article 6 of SFDR enjoyed the majority of the estimated net inflows €107.4 bn, or 69.13%, of the overall estimated net flows (ENF) in the European ETF industry, since the majority of products is tracking plain vanilla indices. ETFs assigned to article 8 of the SFDR enjoyed estimated net inflows of €43.2 bn, or 27.82%, of the overall ENF, while ETFs assigned to article 9 had shy inflows of €2.6 bn, or 1.70%, of the overall ENF. ETFs which are not assigned to an SFDR article had ENF of €2.1 bn.
One my assume that the European ETF industry and the respective investors have moved away from sustainable products given the somewhat sluggish estimated net flows for ETFs assigned to article 8 and 9, but this seems not be true at all.
The European ETF industry launched 177 new products over the course of 2023. More than half of these products were assigned to article 8 of the SFDR (97), while 20 were assigned to article 9, 37 were assigned to article 6, and 23 new ETFs were not assigned to an SFDR article at all at the end of December 2023.
This means that the European ETF industry is working on a broader product offering to enhance the inflows into ETFs with a sustainable investment objective. Therefore, it is to be expected that the flows into ETFs assigned to article 8 or 9 of the SFDR (or the respective new assignments after the ongoing review of SFDR is completed) will increase in the future.
More details on this topic will be unveiled in my ETF yearbook which will be released on April 11.
The views expressed are the views of the author and not necessarily those of LSEG.
This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. LSEG Lipper cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.
