COVID-19 Has Been a Major Catalyst of ESG Investing Around the World
September 2, 2021 — London
Investor interest in responsible investment, sustainability, and related themes has accelerated rapidly over the past year
The coronavirus pandemic has acted as a catalyst for the adoption of environmental, social, and governance (ESG) investing and thematic investment more broadly, according to Cerulli Associates’ latest report, Global Markets 2021: Continued Growth in Uncertain Times. The global research and consulting firm submits that although the growth of ESG investing means additional regulation and the need for different skill sets, it is creating new opportunities in terms of both products and markets.
“We expect the spread of ESG investing to continue around the world to varying degrees,” says André Schnurrenberger, managing director, Europe at Cerulli Associates. “Over the past year, we have seen two key trends in this area. One is that both retail and institutional investors are showing increasing demand for sustainability; the other is that responsible investment products have outperformed consistently, even in the face of significant challenges.”
Deeper scrutiny of ESG processes is becoming more firmly entrenched among U.S. institutional investors and there has been broader progress in the country’s retail investor and retirement segments. Asset owners place high importance on asset managers having an articulated mission and a culture in which gender and racial diversity and inclusion (D&I) is central. Allocators are digging deeper into firms’ D&I policies, requesting greater transparency in pay equity, profit sharing, and equity ownership.
From an ESG product standpoint, more retail separate account options are coming to market in the U.S. via institutional-quality ESG-focused unified managed accounts and dynamic custom indexing solutions. Nearly 90% of the U.S. asset manager product executives Cerulli surveyed during 3Q 2020 said that incorporating ESG criteria into investment products and processes is at least a moderate priority. Demand from key retail (broker/dealer home office) and institutional (investment consultant) buyers has grown. Managers are receiving increased demand from end investors and anticipate increased demand due to multigeneration wealth transfers.
Some 30% of the managers Cerulli surveyed in Italy expect high demand for sustainable thematic funds and impact investing funds in the country over the next 12 to 24 months. France is set to be one of the fastest-growing sustainable investment markets in Europe over the coming years—second only to Sweden. Several of the managers Cerulli interviewed in France plan to expand and repurpose their existing fund offerings into ESG or “greener” versions over the next year. French pension funds increasingly favor sustainable investment strategies and funds that focus on the transition to a low-carbon economy. In addition, several managers operating in the Netherlands told Cerulli that they plan to focus on launching fixed-income and multi-asset funds that incorporate ESG factors this year. They see an opportunity, because the local responsible investment market is still dominated by ESG equity funds that do not cater to more risk-averse investors.
In Hong Kong, meanwhile, thematic funds that seek to access opportunities created by the long-term structural changes in sectors such as technology, biotechnology, and sustainable investing experienced high demand from distributors last year. Against the backdrop of the coronavirus pandemic, healthcare-focused funds were also popular.
“Investor interest in responsible investment and related themes has been accelerated by the events of the past year and shows no sign of slowing,” adds Schnurrenberger. “Asset managers that can offer specialized value propositions that focus strongly on specific ESG factors will find a receptive audience.”
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