Latest Rundown On ESG Flows - Transcript

Welcome to RBC’s Markets in Motion podcast, recorded March 25th, 2022. I’m Sara Mahaffy, ESG Strategist at RBC Capital Markets and I’m excited to be guest hosting the podcast this week. Please listen to the end of this podcast for important disclaimers.
This week in the podcast, I’ll be highlighting some of our recent work around ESG fund flows. The big things you need to know: (1) Inflows into US listed ESG ETF’s have been relatively strong so far in early March. (2) Relative performance trends for ESG darlings have stabilized, and (3) Clean energy flows have bounced back in March.

If you’d like to hear more, here’s another three minutes. While you’re waiting, a quick reminder that you can subscribe to this podcast on Apple, Spotify, and other major podcast providers. If you like the podcast, please rate and review it to help other listeners find the show.

Now, the details.

First on sustainable fund flows.

One frequently asked question we have been getting recently is how ESG fund flows have been holding up in light of recent events.

We’ve found that US listed ESG ETF flows have been relatively strong so far in early March. After easing back in January and February, ESG ETF flows have bounced back and so far are on pace to match inflows seen in fall 2021.

Inflows into US listed ESG ETF’s in March also look relatively strong so far compared to other smart beta ETF categories.

As we’ve seen inflows into ESG ETF’s fare relatively well in March, we’ve also seen the relative performance of ESG darlings stabilize.

When we examine the performance of S&P 500 names with outsized ESG fund ownership, these are names that are very popular in actively managed sustainable funds but less popular in traditional long only funds and hedge funds, we’ve found that performance trends have improved recently, following sharp underperformance at the start of the year.

Recent outperformance of ESG darlings has also coincided with relative valuation premiums returning to their early 2021 lows, where they last stabilized.

Finally, in terms of key ESG themes, one interesting shift we’ve seen recently has been around clean energy flows.

So far in March, we’ve seen globally listed clean energy ETF flows turn sharply positive, following three months of outflows. This has occurred as we’ve seen policy proposals emerge to both diversify energy sources in the near term, as well as accelerate clean energy and energy efficiency investments longer term as a means of reducing dependency on Russian energy. We’d note that most of these clean energy funds are investing globally.

That’s all for now. Thanks for listening. And be sure to check out our sister podcast, RBC’s industries in Motion, for thoughts on specific sectors from RBC’s team of industry analysts.