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The ESG Boom
What does the chart show?
The chart shows the quarterly net flows and total assets in sustainable or ESG (environmental, social and governance) funds since 2011. The last two years have seen a stark increase in demand for these funds, accelerated by the pandemic as well as events such as COP26 which have put issues around sustainability into the spotlight.
With total assets of $2.4trn in Q1 2020 more than doubling to $4.6trn by the end of 2021 it highlights the greater consideration that investors are giving to responsible and sustainable investing. Whilst rising markets over the period have supported the increase in assets, the extent of the rise has also been helped by much higher flows, with these sustainable funds recording net flows of close to $190bn in Q4 2021.
Why is this important?
Coinciding with a heightened focus on sustainability, there has been a proliferation of ESG-labelled strategies in the last two years. Issues of greenwashing (where managers’ marketing material and disclosures paint an impressive picture of the level of ESG integration that masks the reality within) are becoming more prominent. Morningstar recently announced the culling of 1,200 funds, totalling $1.4trn in assets, from its sustainable fund universe after an investigation into fund manager disclosures.
Taking time to properly research, meet and understand managers’ approaches and processes is integral in navigating this issue. It is also crucial that investors never lose sight of the fundamentals. It is easy to be swayed by positive sustainable messaging made by companies and fund managers, but business fundamentals might not necessarily stack up. We advocate an integrated approach, whereby one considers the ESG risks, or indeed opportunities, as part of a broader appraisal of company fundamentals.
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By Mondial DubaiWhat does the chart show?
The chart shows the quarterly net flows and total assets in sustainable or ESG (environmental, social and governance) funds since 2011. The last two years have seen a stark increase in demand for these funds, accelerated by the pandemic as well as events such as COP26 which have put issues around sustainability into the spotlight.
With total assets of $2.4trn in Q1 2020 more than doubling to $4.6trn by the end of 2021 it highlights the greater consideration that investors are giving to responsible and sustainable investing. Whilst rising markets over the period have supported the increase in assets, the extent of the rise has also been helped by much higher flows, with these sustainable funds recording net flows of close to $190bn in Q4 2021.
Why is this important?
Coinciding with a heightened focus on sustainability, there has been a proliferation of ESG-labelled strategies in the last two years. Issues of greenwashing (where managers’ marketing material and disclosures paint an impressive picture of the level of ESG integration that masks the reality within) are becoming more prominent. Morningstar recently announced the culling of 1,200 funds, totalling $1.4trn in assets, from its sustainable fund universe after an investigation into fund manager disclosures.
Taking time to properly research, meet and understand managers’ approaches and processes is integral in navigating this issue. It is also crucial that investors never lose sight of the fundamentals. It is easy to be swayed by positive sustainable messaging made by companies and fund managers, but business fundamentals might not necessarily stack up. We advocate an integrated approach, whereby one considers the ESG risks, or indeed opportunities, as part of a broader appraisal of company fundamentals.