Investments in sustainable ETFs have increased urgency

Dan Barnes Welcome to ETF TV, I’m Dan Barnes. Today, we’re going to be discussing how ESG investments in exchange traded funds space is growing.  With us is Olga De Tapia, Global head of ETF Sales at HSBC Global Asset Management. Olga, welcome to ETF TV.

Olga De Tapia Hi, Dan. Thank you for having me.

Deborah Fuhr And I’m Deborah Fuhr. We’ve seen that the ESG ETFs broke through the 100 billion milestone at the end of July. So we’ve seen increasing interest, especially in Europe, which accounts for 51% of all the assets in ESG. Olga, maybe you can share with us, how do you see demand for ESG products, especially in Europe, being impacted by the pandemic, social movements and also regulations?

Olga De Tapia We clearly have seen the demand increasing not only in Europe, but as well in Asia and Latin. I think the pandemic and the social movement has impacted more to retail and to private banks. Obviously, everybody has seen all the the news in the papers, etc. And this kind of public has been very moved by these. And then on the other side, we’ve seen the regulation been impacting the more institutional clients. We’ve seen a lot of diversity in Europe, clients in the Nordics, they are very pioneering, they’ve been using the sustainable investment, the ETFs for a long time. Then we see countries like Belgium, Netherlands that they are really, really regulated with the Belgian label. Now we see others like France on the way, and in order to be considered sustainable in France, they need to have 90% the portfolio invested in sustainable ETFs with the French label. So this is really driving the change. And then we’re going to have countries like Germany where they don’t really have a regulation, but they have a very clear classification of what is sustainable or what is not sustainable? Or medium, basic, sustainable or intact. So this is conditioning the wealth investor and wealth managers to have all types and ranges of products in the portfolio.

Dan Barnes And Olga, have you seen any signs of increased urgency in investment in ESG ETF products, and what sort of signs would there be?

Olga De Tapia Yes, absolutely. We have actually seen a lot of demand from retail, which is more sought out in the 3-4 months after the pandemic hit Europe. We have a retail product invested in ETF, which is sustainable and the demand has been exponential, which we didn’t see so much at the beginning of the year. So definitely the pandemic has impacted these flows. As well  we are seeing in Asia we have an app investing in ETFs and other products, and it’s focused for millennials. And these millennials, it seems like they really urge for this kind of sustainable product ETFs.

Dan Barnes That’s very interesting, and it potentially says that inflows are going to increase significantly, perhaps over the next 12-18 months, more so than we’ve seen before.

Olga De Tapia I hope so. Weare clearly seeing that already.

Deborah Fuhr Do you see the EU Sustainable Finance Action Plan influencing the types of products investors want you to develop or want to find out there in the market?

Olga De Tapia We have seen this plan develop in the last three months as well with the Paris Aligned benchmark, the climate transition benchmark. This is clearly driving as well the demand of the clients. We see a lot of demand and focus on climate, on lower carbon ETFs, whereas before it was more focused on sustainable ESG products, but at HSBC, we have developed a new, very innovative range of ETFs, which tackle not only the new plan of the European Sustainable Plan Action with the climate, but at the same time the ESG considerations. We have developed a methodology based on tilting. So we are going to tilt on three pillars which are easy. The second is going to be lower carbon reduction and the third is going to be fossil fuel reserves reductions. With this tilting, we manage to maintain a lower tracking error, which was very important.

Deborah Fuhr Are there any other unique aspects of the way HSBC is actually managing these ETFs?

Olga De Tapia We’ve been including responsible investment for many years. Across all our investments, since 2010, we have been excluding fund weapons. So we are really dedicated and we wanted with this new range of colors that we have developed, express what we see and what we think is responsible investment. So not only working very close to what we wanted to express, but on the other side, HSBC is very, very strong in engagement, which is a really important part of the process. It’s not that much, what type of product you are using and investing in? It’s what is the manager of those products doing with that money that is sitting in those portfolios, right? So we are one of the top five asset managers in terms of engagement, so we have kind of a moral imperative to drive real change. So we’re going to engage, we’re going to vote, make a real change. Thanks to this methodology that we have developed, we’re going to have more maybe marginal positions in the portfolio that have maybe a lower scoring. But they’re going to give us the option to really drive change with the companies that are not maybe so good. And that’s the way we differentiate with the other asset managements.

Deborah Fuhr Thank you for sharing that with us. That’s been very insightful.

Olga De Tapia Thank you very much for having me.

Dan Barnes I’d like to thank Olga for her expertize, Debbie for her insights, and of course you for watching. To catch up on our other shows, go to ETFTV.NET or TRADERTV.NET.

Published on September 18, 2020