Environmental, Social and Governance (ESG) 2022 – From being a niche, ESG turns into a mainstream investment strategy

The increasing ESG momentum is being fuelled by client demand and external pressures. More global investors this year say their approach to ESG is driven by client expectations and reputational concerns (42% vs. 37% in 2021).

Client demand is a big factor. Clients are increasingly asking for investments in renewable energy and investments targeting Sustainable Development Goals,” says a portfolio manager at a German private bank.

ESG is becoming highly appurtenant as investors are becoming more socially and environmentally conscious. Companies which are to be adhering to ESG social norms are less likely to be involved in scandals or affiliated with disreputable business conduct.

In future investors want to be associated with companies that are high when it comes to ESG norms and government will increase its scrutiny on those companies which are not following ESG standards and shall take actions accordingly.

Below are some following industry trends:

• Demand is led by investors: Over $500bn flowed into ESG-integrated funds in 2021, contributing to a 55% growth in assets under management in ESG-integrated products. The growth in ESG investing is expected to continue through 2022, and well beyond

• Technology is driving product innovation: New technology is assisting fund managers in keeping up with the rapid increase in demand for sustainable investments. The internet changed how information is captured, documented, and disseminated, giving investors access to more data than ever before

• Investment research is increasingly focused on sustainable outcomes: To support the growth of sustainable investment management, ESG research frameworks are being developed and refined. For example: J.P. Morgan Asset Management seeks to add value by ensuring that innovative product development, proprietary research, and rigorous investment stewardship work in tandem to provide the ESG exposures that investors require

• The energy transition is creating new risks and opportunities: In addition to focusing on individual companies’ ESG credentials, investors are beginning to pay more attention to sectors, countries, and regions that have the resilience and competitiveness to thrive as the world transitions to a low-carbon future

Conviction in ESG is further underscored in the finding that just 13% of global investors agree ESG is a passing fad that will go out of fashion. This demonstrates how most investors view ESG as a permanent and pre-eminent part of the investment landscape.

The increasing ESG momentum is being fuelled by client demand and external pressures. More global investors this year say their approach to ESG is driven by client expectations and reputational concerns.

Overcoming the lack of consistency in ESG scores, as mentioned by half (50%) of investors, remains the most difficult challenge when incorporating ESG data, ratings, and research into investment decision -making.

Funds that invest with a sustainability focus, whether through an environmental, social, or governance lens, account for about 4% of the global ETF market in terms of assets. ESG-themed funds receive approximately $25 billion of the $10 trillion ETF market, accounting for 8% of total inflows.

For details on Overview of the Industry andESG themes feel free to refer to the following ESG Industry report from CrispIdea.

Environmental, Social and Governance (ESG) 2022 – From being a niche, ESG turns into a mainstream investment strategy – CrispIdea