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Assets managed from an environmental, social and governance point of view continue to grow. And while it’s still largely being driven by institutional investors, the retail side is growing dramatically.
In fact, money managers who use ESG factors in their investment analysis say that climate change remains their main concern and criterion when putting money into action.
Between 2018 and 2020, total US-based sustainably invested assets under management, both institutional and personal, rose 42% to $ 17.1 trillion, compared to $ 12 trillion. This emerges from the 2020 trend report of the Forum for Sustainable and Responsible Investments. The latter number represents 33% of the total US $ 51.4 trillion in assets currently under professional management.
The money managers reported another 50% increase in the assets they manage on behalf of retail or high net worth investors, rising from $ 3.03 trillion to $ 4.6 trillion over the same period, according to the report.
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In terms of investment vehicles, some of the most significant inflows (combining both institutional and retail investors) over the past two years went to exchange-traded funds, collective investment schemes and alternative investment vehicles, growing 200%, 44% and 22%%, according to Chris Phalen, research manager at the Forum for Sustainable and Responsible Investing.
The numbers behind the percentages are striking. According to a Morningstar report, “US sustainable funds gained new assets at a record pace in 2019.”
“Estimated net inflows into open-ended and exchange-traded sustainable funds available to US investors totaled $ 21.4 billion for the year,” the report continued. “That is almost four times the previous annual record for net flows of 2018.” See the Morningstar chart below to graph the trend.
In fact, there was a turning point in late 2018 when sustainably managed mutual funds and ETF assets rose from $ 390 billion to $ 2.8 trillion by September 30 this year, according to research by Sustainable Research and Analysis LLC, an independent ESG research firm .
Henry Shilling, the company’s founder and director of research, identified several growth drivers that have gained momentum in recent years, including:
- The Paris Climate Agreement, passed in 2016, has encouraged more and more investors and asset managers to think sustainably.
- A rapidly growing number of asset managers who subscribe to the UN Principles for Responsible Investing.
- The social justice movement receives more support and attention.
- More studies are emerging that suggest investors don’t have to forego returns to work toward positive societal outcomes.
Many new players have also entered the landscape. In 2010, the 10 largest funds held 70.6% of the sustainably invested managed assets. In 2020, the top 10 funds accounted for only 38% of that total, suggesting strong growth in the number of new sustainable funds, according to SRA.
New money flows … or not?
The growth numbers within the sector need additional research, said Henry Shilling, founder and research director of Sustainable Research and Analysis LLC.
“About 85% of the growth in assets under management by sustainable mutual funds and ETFs can be attributed to the rebranding of funds – existing funds that have formally changed their strategies for using sustainable approaches,” he said. “It’s not net new money.”
In fact, between January 2019 and September this year, 799 sustainable funds identified by the SRA were renamed.
Another obscuring the importance of statistics is the fact that there is no generally accepted definition of a sustainable mutual fund or ETF among researchers, Shilling said. – DN
Use the ‘E’ and ‘G’ in ‘ESG’
Environmental and governance criteria play a leading role in making dollars, and have increased 58% and 47%, respectively, since 2018, Phalen said.
In particular, he added: “The fastest growing environmental criteria are climate change / carbon and sustainable natural resources. [notably,] Sustainable natural resources, in particular, rose 81% to $ 2.4 trillion and weren’t even among the top ten environmental criteria in 2018. “
“In terms of governance criteria, assets under management in terms of executive compensation and policy contributions saw the largest increases in the past two years, at 122% and 80%, respectively,” added Phalen.
In the forum table below, you will find the most important specific ESG criteria for money managers in 2020, regardless of whether they were invested through ESG founding and / or shareholder strategies.
Investor interest is growing rapidly. A Morningstar report found that 72% of the US population showed at least a moderate interest in sustainable investing, while a Morgan Stanley survey found that 85% of all individual investors were interested in sustainable investing, up 10 percentage points from 2017; At the same time, 95% of millennials were interested, an increase of 9 percentage points.
The attitudes of the consultants are also changing. According to a Nuveen report, consultants’ perception that clients are committed to social and environmental concerns in their portfolio decisions rose from 44% in 2018 to 74% in 2019.
To see this on the ground David Wolf, CEO of BSW Wealth Partners in Boulder, Colorado, noted that “It used to be baby boomer women and millennials, but for the past three to five years it’s been across the spectrum.
“It has become the default.”