With sustainable investments slowly becoming more mainstream, the concept of “ESG” as a term will no longer be a differentiating factor in the next few years, according to a panel who spoke during FSA’s Spotlight On ESG virtual event last week.

Isaac Poole, chief investment officer at Oreana Financial Services, believes that in the next three to five years, there will be no funds with ESG labels on them and that ESG is expected to be integrated into all funds.

“If you do not have sustainable investing or an ESG process embedded… you simply won’t have a fund and asset owners and asset allocators will not just be interested in talking to you,” he said.

“Fund managers who will not consider some of these ESG risks and opportunities will definitely miss out,” added Alistair Thompson, director at FSSA Investment Managers.

Nachu Chockalingam, senior credit portfolio manager at Federated Hermes, also expects that most fund managers will be integrating ESG into their investment process.

“Differentiation will likely shift from the mere fact that managers are doing or integrating ESG into their investment processes to how they do it, how well it is embedded in the culture of the firm, how they have adapted to all of the data, the technology, the tools, the intellectual capital available and how much of their approach is proprietary,” she said.

ASIA CATCHING UP

ESG adoption continues to lag in Asia, however, relative to its European and US counterparts.

As of the end of 2020, Asia ex-Japan sustainable fund assets stood at $25.4bn, accounting for just 1.5% of the $1.65trn sustainable fund universe globally, according to data from Morningstar Direct.

However, total net inflows toward ESG funds in Asia were at $7.5bn last year, which compares to only $810m in 2019, indicating a surge of interest in sustainable investments.

“We are earlier along the journey towards fully embracing and implementing sustainable investing throughout Asia than our European, US or Australian counterparts,” Oreana’s Poole said.

“But starting the journey provides a lot of opportunities to catch up and we are seeing it, and we are seeing it much sooner here in Asia from an investor-led demand for sustainable ESG products.

“Regulators have also caught up relatively quickly in this region, and are now focusing on providing more information to investors and focusing on addressing greenwashing at the fund level. These are all important developments that I think, three years ago, we weren’t seeing,” he added.

To watch FSA’s Spotlight On: ESG live event is now available on-demand, click here.