In a significant development, some of the world’s biggest asset managers, including BlackRock Inc and Vanguard Group Inc have introduced new exchange-traded funds that exclude fossil fuel companies including coal, oil and companies from other industries, after a number of investors voicing concerns that they want to avoid investing in these polluting sectors.
The so-called ESG funds use environmental, social or governance criteria to pick investments.
“In our conversations clients continuously bring up the topic,” said Rich Powers, head of ETF product management for Vanguard, the largest mutual fund company with $6.6 trillion under management.
According to Morningstar Inc, a research firm, inflows of funds into such funds have reached a record pace in 2020, raking in $20.9 billion through June, a little shy of the annual record of $21.4 billion for all of 2019.
The demand is partly reflective of the performance of the funds, which has often topped traditional investment products this year. This is despite the fact that many funds were held back by strategies such as not owning high-performing energy stocks.
The Vanguard ESG U.S. Corporate Bond ETF, the company’s first fixed income offering in the sector, will track the Bloomberg Barclays MSCI U.S. Corporate Select Index, which excludes oil and gas, alcohol and civilian firearms companies.
Previously the manager launched ESG equity products including the Vanguard ESG US Stock ETF, now with about $2 billion in assets.
With $7 trillion in total assets, BlackRock offers three ESG stock funds that recreate exposure to S&P indexes of large, mid-cap and small-cap companies.
“The ETFs will screen out companies with certain levels of investment in the thermal coal, oil sands or shale energy sectors,” BlackRock said.