ESG ETFs are gaining favor with institutional investors, especially insurance companies.

Invesco finds on analysis of recent asset allocation trends that some major institutional investors including insurers, have already realigned their portfolios in favor of ESG strategies.

“The driver behind ESG growth is coming from a need for the new generation, our children, who are wanting to save the planet and wanting to do the right thing and those values are coming to play in the investment world more and more,” says Charles Moussier, EMEA Head of Insurance Investment Solutions at Invesco. (ETF Express)

Institutions buying ESG ETFs

What’s more interesting is that these sophisticated investors are taking increasing recourse to ESG-focused ETFs to give effect to their strategies for sustainable investments.

According to Invesco, the reasons for ESG ETFs becoming popular with institutions including insurers are as follows:

• Compliance with regulatory requirements
• Flexibility in asset allocation
• Ability to fine-tune ESG strategy through ETF selection
• COVID-19 crisis and ensuing market volatility catalyzing ESG trend
• ETFs continued to trade, aid in price discovery, and provide liquidity through the worst of the pandemic crisis
• Transparency
• Low costs
• For insurers, ESG strategies in recent years have cushioned risk
• The ETF format lends itself easily to “self-indexation” – defining and implementing ESG strategies that are insurer-specific

Invesco: Regulatory pressures on insurers re. ESG

European insurers will have to comply with new ESG reporting norms. These require them to publish a detailed ESG risk integration policy on their website.

Again, life insurers and all companies offering insurance-based investment products will have to make ESG disclosures in their pre-contractual documents for clients.

Insurers with more than 500 employees will also be required to disclose their policies concerning the negative ESG impacts, if any, of their investments. On the flip side, these insurers must also disclose the quantum of their investments that finance sustainable initiatives.

For all the above reasons, the rising tendency of institutional investors, particularly insurers, to invest in ESG ETFs is expected to only escalate in the future.

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