Appetite for ESG drives overall ETF flows in 2022

Despite challenging performance conditions


Natalie Kenway

ESG products accounted for 65% of total flows into ETFs in 2022, amid a challenging backdrop for performance.

The European ETF and ETC market amassed €78.4bn of flows in the fourth quarter of last year, according to Morningstar’s Direct European ETF Asset Flows Update Q4 2022, a figure markedly lower than the €160bn reported in 2021 due to impact on investor sentiment from the war in Ukraine, the cost-of-living crisis and spiralling inflation.

However, passives fared better than active funds as investors flocked into sustainable ETFs.

As mentioned, 65% of total ETF flows were directed towards ESG products in 2022, up from 53% in 2021. Morningstar said assets in ESG investments have grown to €248.8bn from €235.3bn in 2021, meaning ESG assets now represent 18.8% of total assets invested in ETFs and ETCs in Europe, up from 16.7%. The data firm also noted this figure goes up to 20.5% if ETCs are excluded from the calculation.

For the fourth quarter, ESG ETFs saw €14.9bn in flows, an increase from €16.1bn in Q3. Equity products were most popular with €7.8bn in flows, but this was down from €10.1bn in the previous quarter. Meanwhile, ESG bond ETFs weren’t far behind and gaining in popularity with €7.1bn of inflows, a step up from the €6bn of flows seen in the third quarter.

The report said: “The trend in favour of ESG has strengthened notably in the past three years. Driven by a mix of investment in new products and the repurposing of mainstream funds into ESG propositions, annual flows into ESG products as a proportion of total flows into the ETF and ETC market have ballooned to a record high of 65% in 2022 from 14% in 2019.”

European ESG flows (% of total ETF and ETC flows)

European ESG Flows (% of Total ETF and ETC Flows)

Jose Garcia Zarate, associate director of passive strategies at Morningstar, commented on the overall ETF stats: “Against very challenging financial market conditions, the European ETF market proved remarkably resilient in 2022, attracting annual inflows of €78.4bn. This was down from €160bn in 2021, but compared against the strong outflows from active funds, ETFs— passive funds in general—weathered the storm better.

“Furthermore, in a year when ESG underperformed the mainstream, 65% of total flows were directed to ESG products, up from 53% in 2021.”


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