Passive providers have been busy launching environmental, social and governance (ESG) ETFs in recent months, on the back of strong investor demand helped by the availability of more historical data.
ESG scoring
Adam Laird, head of Northern European research at Lyxor, also highlighted cheaper access and the ability to easily score companies with an ESG rating as reasons why more passive providers are looking at this space.
He said: "One other factor has been fees. "Until recently, ethical investing had been for active managers.
"They were able to view a company, meet management and give it a score based on what they saw.
What will be the Trump effect on sustainable investing?
"However, index fund providers are increasingly able to screen companies on SRI compatibility, so they have been able to launch lower-cost products."
Factor investing
Monnier added that previously providers had different views on what constituted an ESG product, which confused investors. But recently, a market consensus has been reached where investors understand the "holistic" process providers are employing, leading to greater confidence in the space.
"In the past, there were different products with varying views about what ESG should be, which brought confusion to the market. Institutions were effectively probing in different directions," he said.
Kenneth Lamont, research analyst at Morningstar Europe, also pointed to the development of technology in the industry, coupled with the growing awareness of ESG investments, as key drivers of the increase in passive launches.
He said: "Development of technology has made it possible for these strategies to be implemented efficiently and cheaply within passives, whether that be index funds or ETFs. There is a growing awareness of ESG as an investment factor."
