The past two years have been inundated with an influx of ETFs that utilize environmental, social, and governance (ESG) criteria when selecting securities. Over time, the selection criterion has evolved and even differs among various index providers. Academic research has shown that ESG driven strategie to either keep pace with broader market-cap indexes or even in some cases, outperform. 2016 was a quite a busy year for ESG focused ETFs offering both broad exposure and niche thematic exposures. While ESG ETFs have existed in the market place since 2005, they seem be to garnering more media attention rather than assets.
The graphic below depicts a list of broad based ESG ETFs (excluding products like water, solar, etc) and their relative benchmarks. Form the list below, you will notice that only two products have at a year a 3 year track record (DSI and SUSA). The cells highlighted in green indicate if that ESG strategy is outperforming the broad benchmark for that respective time period (and vice versa with the red shading).
A few key points to highlight it that YTD, the emerging markets focused products are outperforming EEM. Additionally, the two most tenured products have both underperformed SPY on a 1, 3, and 5 year basis. Many of these ESG products are relatively new to the market and for the time being it seems that the market has gotten ahead of demand. The jury is still out on these ETFs but they are likely to attract more attention as their track record builds.