ETFs Score ESG Gains; European Rules Catch up With US Fund Managers
According to a report in the Wall Street Journal, asset managers have been raking in profits from ETFs focused on ESG, mainly because such funds carry a higher fee. Citing data from FactSet, the report said ESG-focused ETFs have 43% higher fees than popular standard ETFs, with the average fee at 0.2 compared to 0.14 for the standard U.S. large-cap ETF. The report also noted that nearly $8 billion has flowed into U.S. ESG-themed funds in just January and February, putting the first two months of flows roughly on par with all of 2019. Meanwhile, US regulators continue to consider a regulatory regime for ESG investments and related disclosures. The SEC recently launched a page on its website dedicated to ESG, and at a meeting of its Asset Management Committee panelists discussed the ESG’s subcommittee’s work on in the issue. Commissioner Hester Peirce in a statement to the Asset Management Committee, however, hinted at frustration with the focus on ESG and urged members to address a broader range of industry topics. Peirce said the issue of mandated ESG disclosures would require regulators to abandon established principles of materiality in disclosures. “Materiality has served us well, and undermining it to accommodate ESG will harm investors. … ESG standards, however, continue to be talked of in broad strokes that obfuscate the immaterial nature of many of the specific underlying disclosures,” Peirce remarked. Across the Atlantic, Europe’s new Sustainable Finance Disclosure Regulation is placing new ESG requirements on US banks, private-equity firms, pension funds, hedge funds. According to the WSJ, the EU rules apply to all funds, even if they don’t market themselves as sustainable and will affect about 55 US companies that manage Ireland- and Luxembourg-based funds from the US. The WSJ reported that the rules will require many funds to disclose information on companies, including data that the companies may not disclose themselves.