All funds will be ESG funds in five years, say professional investors

Three-quarters of UK fund buyers say all funds will soon incorporate ESG as sustainable investing gathers further momentum in the aftermath of Covid-19, new research shows.

A CoreData Research study of 200 professional fund buyers around the world found nearly two-thirds (63 per cent) think all investment funds will incorporate ESG in five years. This proportion increases to almost three-quarters of respondents in the UK (73 per cent) and Europe (72 per cent). However, only half of fund selectors in North America (50 per cent) believe such a scenario will play out.

The survey, conducted in November and December 2020, also shows that momentum towards ESG has accelerated since the pandemic. Six in 10 (60 per cent) global professional fund investors say they have increased their focus on ESG in the wake of Covid-19. The UK is leading the sustainability charge, with eight in 10 (81 per cent) raising their ESG commitment. But the picture is somewhat different in North America, where less than half (42 per cent) have upped their focus on ESG in light of the pandemic.

A key factor driving the heightened ESG focus is a belief that sustainable investments can help deliver superior performance. Half (50 per cent) of global respondents say ESG funds tend to outperform their non-ESG counterparts — a sentiment most pronounced in the UK (65 per cent) and Europe (60 per cent). However, less than a third (31 per cent) of North American respondents share this conviction.

“The pandemic has helped reset humanity’s moral compass and encouraged people to favour investments aligned with their beliefs and values,” says Andrew Inwood, founder and principal of CoreData. “Furthermore, there is a growing body of evidence indicating that ESG can help enhance performance and improve risk management. All of which means the ESG story has a long way to run.”

Meanwhile, a strong majority of respondents think active managers can capitalise on the rising tide of sustainable investing. Three-quarters (75 per cent) of professional fund investors around the globe think increasing demand for ESG will benefit active funds, with this figure rising to 92 per cent of UK respondents.

But as sustainable investing becomes more widespread, there are concerns about companies only paying lip service to ESG. Eight in 10 global respondents (80 per cent vs. 77 per cent UK) say greenwashing will become more prevalent as demand for ESG increases. Concern over greenwashing is highest in Asia (88 per cent).

The study also shows that nearly three in 10 (28 per cent) global fund selectors think ESG represents a market bubble that will eventually burst. This belief is held most strongly by respondents in Asia (50 per cent). At the other end of the spectrum, just 12 per cent of UK respondents see ESG as a bubble waiting to burst.

“These findings likely reflect a view that there is a lot of hype around ESG rather than a belief that it is a passing trend or fad,” adds Inwood. “ESG is clearly a megatrend that is here to stay.”

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