Investing in the future

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Sustainable investing has gone mainstream in the US with 75 per cent of 300 managers surveyed last year adopting an ESG strategy for at least some of their portfolios.

The report entitled Sustainable Signals: Growth and Opportunity in Asset Management was conducted by the Morgan Stanley Institute for Sustainable Investing and Bloomberg.

Some 89 per cent of fund managers said that sustainable investing was here to stay while 63 per cent say they expect adoption to grow in the next five years.

Crucially 82% of firms say that ESG practices can lead to higher profitability while 62% of firms say that it is possible to maximise financial returns while investing sustainably.

Assets of US$12 trillion

The report says that these findings mean that the equivalent of $12 trillion or one quarter of US assets under management are considering adopting sustainability principles.

The US fund industry is seeking better data with 70 per cent of respondents saying that the industry lacks standard metrics to measure the “the non-financial performance” of sustainable investments while 68 per cent expect to see growth in customised solutions.

The breakdown in terms of adoption is as follows –

  • 44 per cent of firms say they incorporate sustainable investing widely
  • 31 per cent of firms are specialist – exclusively focused on sustainable investing
  • 16 per cent see themselves a non-adopters but plan to do so in future
  • 8 per cent do not employ ESG currently nor do they plan to in future

The report also breaks down the drivers of sustainable investing. It suggests that for 50 per cent of managers, financial returns are the most important factor, the social and environmental impact is most important for 20 per cent with the remaining 29 per cent rating them equally.

The report also asked about the reasons why firms adopted ESG. The highest percentage 29 per cent said it was to capture new assets, equal to high growth potential while 26 per cent said their investors expected it. The same percentage 26 per cent cited the well-being of the environment, 24 per cent to demonstrate integrity, 21 per cent cited the well-being of society, 19 per cent evolving societal norms, 17 per cent fiduciary duty, 16 per cent portfolio risk management and 14 per cent outsize financial returns.

The product mix saw 62% of firms offering ESG through mutual funds, 55 per cent alternatives, 51 per cent for ETFS and 45 per cent for separately managed accounts.

Better definitions required

The US asset management industry continues to be concerned about definitions. Seven in ten respondents believe there is no standard definition for ESG while 70 per cent agree there is no standard industry metrics in place to measure non-financial performance, while 66 per cent feel there is not enough credible data and research on both sustainability and to prove that sustainable investing offers a good financial opportunity.

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