Ethical ETFs close in on $20bn milestone

Australia's ethical ETF sector is closing in on the $20 billion mark, with funds under management reaching $19.88 billion at the end of September, up $1.55 billion over the past year, according to Betashares.

Demand has spanned from broad ethical and responsible investment strategies, climate and clean-energy funds, critical minerals, carbon-control strategies, green bonds and diversified ethical portfolios.

"The sector has come a long way since its beginnings in 2015. In a little over 11 years, it has grown more than 250-fold, highlighting how ethical investing has moved from a niche preference into the mainstream," Betashares responsible investments manager Vinnay Cchoda said.

He added growth had been steady since the heady years of 2020 and 2021.

"You could argue that it's picking up again in terms of interest, but it's slow and steady is how I would put it. More importantly, from our perspective, the funds in these products are very sticky," Cchoda said.

"Investors are focused on aligning their investments with their values and hence are more focused on what's under the hood rather than fancy performance metrics."

Cchoda also urged investors to look beneath the label.

"Ethical and responsible ETFs can have very different screening methodologies, portfolio exposures and approaches to stewardship, so looking under the hood before investing remains as important as ever," he said in a statement.

He said that understanding a fund's stewardship approach, including how it engages with companies and votes its proxies, helps investors figure out how true to label a product is.

Investor interest is also broadening beyond shares, with fixed income and multi-asset strategies now accounting for almost $1 billion in flows.

"It's not just an equities show anymore," Cchoda said.

He said investors had more recently been moving money into ethical fixed income and multi-asset funds, reflecting the widening range of responsible investment options on offer.

While low-cost responsible passive funds continue to see the majority of fund flows, active strategies, however, are fragmented between winners and losers, with some funds folding due to lack of scale.