ESG investing? Demand for ASX ethical ETFs is on the rise

Ethical ETFs are rising in popularity for ASX investors, especially millennials, keen to tap into ESG concerns. Here's what the data shows

| More on:
ethical investing in ASX shares represented by road signs stating corporate ethics and honesty

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Yesterday, we looked at how ASX exchange-traded funds (ETFs) are growing ever more popular for investors. That's especially the case with millennial and Gen Z investors under the age of 40. 2020 saw record fund inflows into ETFs, and 2021 looks to be continuing this trend.

ETFs used to be dominated by pure, broad-based index funds, like those tracking the S&P/ASX 200 Index (ASX: XJO). Or even overseas indexes like the US S&P 500 Index (INDEXSP: .INX). These funds are still very popular with ASX investors. But new research from ETF provider BetaShares indicates that this pattern might be shifting.

BetaShares' research shows that the ETFs investors sought last year were dominated by high-growth funds. This popularity was particularly evident during the worst throes of the pandemic. 26% of investors reportedly ranked high growth as their most desired ETFs over the period. Another 24% of ETF investors were looking at sector-specific funds, such as those covering oil, tech shares, or gold.

But the research also showed that 20% of investors were looking for more socially responsible investment products. When looking at younger investors, BetaShares found that number rose to 28% when just the millennial demographic was asked.

Investing ethically

Ethical ETFs, which are sometimes described as 'ESG-focused' (for ethical, social and corporate governance), only invest in companies that do not operate or do business in 'unethical' operations. These differ from interpretation to interpretation.

But the companies most often excluded from ESG funds are those who trade in alcohol, tobacco, firearms, and fossil fuel extraction. Other 'unsavoury activities like uranium, gambling or human rights violations are also often included in these ESG criteria.

BetaShares CEO Alex Vynokur had this to say on the research's findings:

The increased interest in socially responsible investing coincides with widespread and growing concern around the environment and global warming… The COVID-19 pandemic has also brought social and governance considerations strongly into focus. We think this trend is likely to continue as the global economy emerges from the pandemic, and investors favour portfolios and companies whose practices align with their ethical values…

Our research shows that investors are looking to allocate a quarter of their portfolios to socially responsible funds. We believe ethical ETFs will continue to outpace the growth of traditional ETFs and more ethical products will be launched in 2021 to tap into that demand.

There are several ethically-focused ETF listed on the ASX. Some of the most popular include the BetaShares Global Sustainability Leaders ETF (ASX: ETHI) and the Vanguard Ethically Conscious Australian Shares ETF (ASX: VETH).

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ETFs

Man holding out Australian dollar notes, symbolising dividends.
ETFs

5 excellent ASX ETFs for a $500 investment next month

If you have $500 available to invest in the share market, then the exchange traded funds (ETFs) in this article…

Read more »

The letters ETF with a man pointing at it.
ETFs

IOZ vs VAS: Which is the better ASX Australian shares ETF to buy right now?

These funds are both popular options. Which is better?

Read more »

a man wearing casual clothes fans a selection of Australian banknotes over his chin with an excited, widemouthed expression on his face.
ETFs

Buy these ASX ETFs for passive income in 2025

These ETFs could be used to generate passive income next year.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
ETFs

3 ASX ETFs to buy and hold for 10 years

Looking to make long term investments? Then check out these ETFs.

Read more »

ETF spelt out with a rising green arrow.
ETFs

Invest $5,000 into these ASX ETFs this week

These ETFs could be great options for investors with money to put into the market.

Read more »

A bemused woman holds two presents of different sizes and colours and tries to make a choice.
ETFs

Are Westpac shares or Vanguard Australian Shares High Yield ETF (VHY) units a better buy?

Is a major bank or a high yield fund a stronger choice?

Read more »

A happy elderly couple enjoy a cuppa outdoors as the woman looks through binoculars.
ETFs

1 excellent ASX ETF I'd buy for the ultra-long term

Just investing in great shares could lead to strong outcomes.

Read more »

a diverse groups of about twenty people stand together in a crowd staring to the front with angry and annoyed looks on their faces.
ETFs

These are the most popular ASX ETFs that Aussies are buying in 2024

Let's see which ETFs are popular among local investors in 2024.

Read more »