Assets under management in dedicated ESG strategies is set to reach $30trn by the end of this decade, according to a new report.
Broadridge Financial Services, a fintech company headquartered in New York, used its market intelligence platform to analyse the net flows of ESG mutual funds, ETFs, institutional mandates and private funds to find that global net flows into ESG mutual funds and ETFs have risen dramatically this year to $577bn in the nine months through September 2021 – this has far surpassed the full-year total of $355bn for 2020.
The firm predicts this momentum will continue with asset managers set to win up to $9trn in net new flows to reach $30trn by 2030.
The report also found among actively managed strategies, ESG drove more than 100% of flows in local European funds and 62% of flows in cross-border European and international markets, while demand for thematic strategies has been reinforced.
Thematic equity products saw net inflows of $303bn worldwide in the 12 months to end of September 2021 – this is 10 times greater than the flows seen in 2019 and dedicated ESG products represented 65% of that total.
Broadridge’s report also predicted investments focusing on thematics, climate transition, net zero and sustainability impacts will be in demand going forward.
However, investors are also requesting concrete evidence from asset managers that their products are delivering on their promises.
Jag Alexeyev, head of ESG Insights at Broadridge Financial Solutions, explained: “ESG strategies accounted for just 11% of overall mutual fund and ETF assets but captured 30% of inflows during the twelve months through September 2021.
“While growth remains strong, the complexities and costs of ESG implementation have risen, and fund selectors have begun to ask harder questions, 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.”