Global Sustainable investing worldwide stands at $8 trillion today and could reach $30 trillion by the end of the decade, according to a new report from Broadridge Financial Solutiions.
The report showed that rrom January through September, investors injected $577 billion into mutual funds and exchange-traded funds (ETFs) dedicated to environmental, sustainable and governance (ESG) —far exceeding the full-year total of $355 billion in 2020.
There are wide geographical differences. for example, in Europe, the strategies drove all money going into actively managed local funds while in North America and Asia Pacific, they accounted for a much more modest—15% and 9%, respectively.
As of September, European managers identified more than 5,700 ESG funds under the Sustainable Finance Disclosure Regulation (SFDR) . with combined assets of $4.1 trillion. Many of these funds were repurposed—through better disclosure or portfolio adjustment—to align with the regulation.
The North American fund industry, on the other hand, lags far behind because it doesn’t have the same regulatory push. However, relaxing ESG restrictions on retirement plans could act as a catalyst to increase flows, says the report.
US institutional investors are farther ahead on the curve. Earlier this year, the BlackRock US Carbon Transition Readiness ETF raised $1.25 trillion on its first day of trading, marking the largest ETF launch of all time. The bulk of the capital came from institutions such as California State Teachers’ Retirement System and a Finnish pension insurance company.
“While growth remains strong, the complexities and costs of ESG implementation have risen, and fund selectors have begun to ask harder questions,” said Jag Alexeyev, Head of ESG Insights at Broadridge Financial Solutions. “In addition, greenwashing has emerged as a key reputational risk that firms must address. Improving a manager’s sustainable investment capabilities, enhancing transparency, and amplifying communication of results can help establish credibility and strengthen client relationships.”
Alexeyev also noted that as greenwashing had become an increasingly important issue, investors also want clear objectives and measurable results—both in sustainable impact and investment outcomes.
These demands, he noted, could hurt smaller asset managers who might not have the resources needed to build the infrastructure for delivering and reporting on sustainability products.
©Markets Media Europe 2021