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Investors are increasingly cognizant of the benefits of incorporating environmental, social and governance (ESG) criteria into their investment decision making. This trend reveals itself in many guises: screens, index tilts, integration into financial decision-making and impact investments, where positive societal impact is a focus.
Large institutions have led the charge, especially those based in continental Europe. However, retail and wholesale interest is on the rise. Advisors reported a 32 percent increase in client interest regarding ESG investing from 2016 to 2017. This trend is expected to continue. Advisors estimate that, dollar-for-dollar, two-and-a-half times more of their assets under management (AUM) will be invested in responsible investing by 2020.
Broadridge and Apex Fund Services recently co-hosted an event, “ESG and Impact Investing: A Critical Market Path,” to discuss emerging ideas and insights on impact investing. The results of an informal, post-event attendee survey showed significant demand for socially conscious investing strategies.
When asked about interest in ESG strategy that they have observed to date:
Our results echo a clear consensus that interest in ESG is growing. But, we also believe that interest is growing more sophisticated and will become even more so in the near future.
Against a backdrop of growing demand for ESG, you can almost forgive certain asset managers for painting a "green" facade over existing investment processes, with changes only skin-deep. This will increasingly not be tolerated, and the quality of implementation will emerge as a key differentiator. A key challenge facing impact investing is the absence of uniform standards to measure ESG alignment to impact.
Thematic and impact strategies will gain ground in both public and private market investments, but client interest will be led by larger investors and most socially aligned (e.g., foundations). The focus will shift more and more to being able to measure progress toward stated goals. This is all part of ESG growing up and becoming a core pillar of the global asset management industry.
To appropriately manage your ESG portfolio, you need the right investment operations solution. Get more information on our order, trading, portfolio management and reporting solutions here about our order, trading, portfolio management and reporting solutions.
1. Calvert Research, "The Rise of ESG Investing"