The environmental, social and governance-based (ESG) market looks set for yet more dramatic growth this year, as the popularity of this investing approach goes from strength to strength.
Perhaps one of the few positives to emerge from the Covid-19 pandemic is that it has reinforced the importance of sustainability and ESG issues and accelerated the transition to such an investment approach.
Within such an approach, asset managers combine traditional, quantitative analysis techniques around financial risk and return with qualitative and quantitative analysis of ESG policies, performance, practices and impacts. But it’s certainly not “one-size fits all” though. Whether it’s ‘best in class’, impact, sustainability-themed or a host of other titles, asset managers can employ a number of different approaches as to how they incorporate ESG issues into the investment process as part of their wider evaluation of risk and return. For asset allocators and portfolio managers, getting to grips with these differences is not as straightforward as it might first appear.
THE TIME IS NOW
According to research by Morningstar, 2020 was an exceptional year for ESG funds. Driven by increased interest in ESG issues, European sustainable funds broke new records in terms of inflows, assets and product development. Their analysis showed that during 2020, sustainable open-ended funds and ETFs available to European investors attracted net inflows of €233 billion. This was almost double the figure for 2019. In the fourth quarter alone, sustainable funds pulled close to €100 billion in net new money, taking 45% of overall European funds flows. That’s an impressive rate of growth in anyone’s book. Morningstar also reported that 505 new sustainable funds came to market.
Of late, tales of fortunes won and lost by retail investors through trading the likes of cryptocurrencies and tech stocks have grabbed the media headlines. In the world of portfolio management and sound, sustainable investment strategies in particular, due diligence and research remain firmly at the core.
But where can asset allocators and investment managers find real value in the rapidly growing ESG market?
It is one of the questions which we’ve asked of various leaders in the UK ESG investment management arena in compiling this Wealth DFM special supplement. Some of our conversations have also been recorded so you can watch them on www.wealthdfm.com as well as reading the detail on the following pages of this supplement. Investors’ needs are focused on attempts to see through “greenwashing” attempts and to identify the businesses which offer significant growth potential as well as a sound approach to ESG issues. Throughout, it is clear that in the current market conditions, insight and detailed analysis come to the fore more than ever before.
We hope you find our experts’ opinions and insight of interest.
Editor, Wealth DFM Magazine