There is a lot of momentum moving towards ESG investing... and the hype is real.

Ahmed Farooq, CIMA®, CFP

Ahmed Farooq, CIMA®, CFP
Vice President - ETF Business Development at Franklin Templeton Canada

Connect on LinkedIn

The growth of ESG has been one of the major investment stories of recent years. From my conversations with different brokerages, it’s clear that environmental, social and governance factors have become a priority in the industry. That’s also obvious when you consider the products asset managers are bringing to the market, and particularly so in the ETF space.

According to data from Scotia’s ETF Research Desk, there are now 84 ESG-focused ETFs in Canada. Of that number, 34 launched this year alone, and 19 of the 41 ETF issuers in this country now have an ESG strategy.

ETF ESG assets have grown by 125.8% on a year-to-date basis, with $3.2b in net flows so far this year, representing 10% of the overall ETF flows for 2021. Impressive numbers for sure, but it’s worth remembering that many ETF analysts believe that these flows have been triggered internally by asset managers’ own multi-asset solutions businesses or from institutional trades. Retail trades by comparison are a much smaller piece of the pie, although this is changing.

In my experience, advisors have been slower to embrace this burgeoning part of the investment industry. Many advisors I have spoken to either have an implicit bias that ESG investing means sacrificing future performance, or they are simply overwhelmed with how large the ESG segment now is. When you consider the number of ESG products and the different methodologies used by providers, perhaps it’s not surprising that there’s still some hesitation out there.

The term ESG is also very broad and covers a range of solutions, from ESG-Integration to ESG-Tilted, Values-Driven, Thematic, and Impact. ESG-Integration may be best suited to an investor who wants to take a comprehensive look at the issues that can affect long-term returns, whereas ESG-Tilted would be for investors who want to meet their financial goals responsibly. A Values-Driven approach would be for someone who is seeking a return, but not at the expense of their values; Thematic targets investments that are working to address environmental and societal challenges; while Impact is for someone who wants their investment to make a measurable positive difference to society.

Of course, one aspect of investing that can be found among every group is the requirement for returns. In my conversations with advisors, I have been quick to counter the idea that performance suffers when adding ESG principles to a mandate. The track records of some of our specialist investment managers attest to that, with ClearBridge Investments, Martin Currie and Brandywine Global operating successful ESG-focused strategies for years now in the United States. 

These retail strategies are also now available for investors in Canada as ETFs.

The success of these mandates over the long term is not solely because of their commitment to ESG; rather, environmental, social and governance is part of a comprehensive investment strategy that considers all factors. As such, holdings must show strong fundamentals and good prospects for a return on capital to be considered for inclusion. This is an important point to note when conversing with some of the more ESG-averse advisors out there.

Just as the three letters “ETF” dominated the investment industry in the post-2008 period, “ESG” looks likely to have similar prominence in the years ahead. In my opinion, it’s an entirely positive development, so I’m happy to see this trend gathering pace. I hope ETFs continue to provide innovative solutions to the myriad of problems our world is facing, while at the same time fulfilling their primary objective of generating returns for investors.

1. Source: Scotiabank ETF Services estimates, Bloomberg L.P. As at August 17, 2021

In the air again...

COVID-19 is still very much with us, however, so it wasn’t exactly back to normal. The normal excitement and energy I would have for a trip was tempered by the anxiety of travelling during a pandemic and all that entails.

After almost two decades in the Canadian ETF industry, what’s next?

The growth of ETFs has been one of the key developments in the investment industry over the past few decades.

There is a lot of momentum moving towards ESG investing... and the hype is real.

The growth of ESG has been one of the major investment stories of recent years.

Finding Value in a European Resurgence

With stage three rollout in Ontario, it is going to be interesting to see how we integrate back into new societal norms.

Evolution of Franklin Templeton means greater specialization

Change, I find, is often a positive and that holds true in most areas of life.

All Duration isn’t Created Equal

An interview with global fixed income portfolio manager John Beck

The Fatigue Factor Under Lockdown

Communicating with clients and colleagues has not been too much of an issue during the pandemic. There are limits to the digital experience, however, and as we face our third severe lockdown here in Ontario, burnout is becoming more apparent.

A podium finish for investing in Japan

The 2020 Tokyo Olympic Games is scheduled to begin July 23, a full year after its original start date.

Inflation concerns in the post-COVID economy

Given the historically high levels of fiscal and monetary stimulus during the pandemic, inflation concerns have been building so far in 2021.

Innovation in the ETF Ecosystem

ETFs in Canada have come along way over the past five years. They are a vital part of the portfolio construction process for many investors and their popularity continues to grow.

A Revolution in Innovation

We will all remember 2020 for many reasons, but key amongst them was how our dependence on technology was undeniably set in stone.

2020: An Unforgettable Year To Forget

Where do I start after a year like 2020? One thing is for sure, we will all remember the past year for the rest of our lives, both from a personal and professional standpoint

U.S. election worries and the case for active management

It is amid this uncertainty, and with the possibility of much more geopolitical and economic turbulence to come, that I would like to make the case for active management.

NEO last price methodology

Given all the possible questions about the exchange-traded funds (ETF) ecosystem, the official closing price of an ETF is probably pretty far down the list. The closing price is the last price of the day, right? As it turns out, there was room for improvement...

A road warrior, now home bound—wholesaling during COVID-19

This pandemic has really changed the way we do business; being constantly on the go has switched to being stuck at home.

Overcoming factor fatigue and is it time to go International?

Factor investing may seem complicated due to the sheer number of products available, all with different nuances to their methodology.

5 Lessons I’ve Learned since launching LibertyShares ETF's

Ahmed Farooq reflects on some of the lessons he has learned since LibertyShares launched 3 years ago.

Did ETFs break down in this latest round of volatility?

Ahmed Farooq, VP of ETFs, looks at how the Canaidan ETF market did during a volatile March.

Discussing Corporate Credit: A Q&A with Portfolio Manager Adrienne Young

Ahmed Farooq interviews FLCI Portfolio Manager Adrienne Young.

Understanding Factor-based Investing

Factor based investing has received a lot of buzz over the past couple of years, but I still hear a lot of confusion when I speak to advisors about how to use them.

A cure for the headaches of fixed income investing

Why actively managed fixed income ETFs are gaining popularity.

Our Latest Building Blocks

The addition to our ETF platform is a continuation of this commitment—a suite of regional and country- specific passive ETFs that can be used within a diversified portfolio for low-cost, precise exposures.

Three Challenges Facing Passive Fixed Income Funds

We are on the tail end of a 30-year bull market for bonds. This unusual period of sustained growth was facilitated by both a low interest rate and low inflationary environment.

Get strategic with tax-loss harvesting

An overview of tax-loss harvesting.

Portfolio building blocks: Mutual Funds or ETFs? Should there be a dilemma?

Mutual Funds and ETFs aren’t quite as different as some advisors initially believe.

Are Smart Beta ETFs actually smarter?

When it comes to new ETFs entering the Canadian market place, Smart Beta strategies are continuing to offer some buzz to the industry.

Fixing fixed income - Are passive fixed income ETFs broken?

One thing that I consistently hear from the advisory community is that fixed income is not one of their key strengths.

What to launch next? An ETF provider's biggest dilemma!

Making Room in a Crowded ETF Space.

Factor based approach to Global Dividends, getting under the hood.

A deep dive into the dividend selection process.

Why investors should consider a global dividend strategy

We are only a few months into 2018 and already there are indicators that the benign financial environment investors enjoyed over the last few years is changing.

Go Global with our new lineup of ETFs

Over the past 5 years, I have had many conversations with advisors who say that their clients are looking to diversify their dividend strategy.

What Are the Risks?

Commissions, management fees and expenses may all be associated with investments in ETFs. Investors should carefully consider an ETF’s investment objectives and strategies, risks, fees and expenses before investing. The prospectus and ETF facts contain this and other information. Please read the prospectus and ETF facts carefully before investing. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. Performance of an ETF may vary significantly from the performance of an index, as a result of transaction costs, expenses and other factors. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Ahmed Farooq’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.