Investors want active managers to add ESG factors to their investments, according to a recent report released by Broadridge Financial Solutions, a global fintech firm.
There is a growing investor demand for active managers to consider environmental, social and governance issues when presenting options to their clients, the report, Active Asset Managers Can Meet Rising Demand with New ESG Solutions, said.
In the United States, net flows to long-term responsible funds quadrupled in 2019 to $20 billion, from $5 billion in 2018, and continued to grow during the first half of 2020 to reach $21 billion in just six months. A majority (68%) of ESG assets in the U.S. are now in actively managed funds, Broadridge said. “Changes in the makeup of the ESG market over the last five years have important implications for asset managers’ strategies,” the report said.
"From both a supply and demand perspective, we have witnessed a shift toward achieving positive environmental and social outcomes alongside competitive investment returns," Jag Alexeyev, director distribution insights at Broadridge Financial Solutions, said. "Active managers are in the driver's seat when it comes to ESG, but in order to maintain their edge in this segment, they need to highlight their agility to proactively manage risks, leverage active ownership, pursue dynamic high-conviction strategies and deliver sustainable outcomes."
In particular, active equity funds are benefiting from the inflows. Flows into ESG active equity funds during the trailing 12 months have reached 15% of average assets in Europe and International cross-border markets, and 10% in the U.S, the report said.
According to a separate survey that accompanied the report, 60% of RIAs, 68% of independent broker-dealers and 81% of wirehouse advisors have some assets in ESG products. That report surveyed 401 financial advisors, As a result of the COVID-19 pandemic, almost a quarter of financial advisors reported that they saw an increase in client interest in ESG, the survey said.
The survey found generational differences. Sixty-nine percent of advisors under the age of 35 are using ESG mutual funds and ETFs now and that number is expected to jump to 83% in two years. Fifty-six percent of advisors over the age of 55 use ESG mutual funds and ETFs, while 74% said they expect to use ESG mutual funds or ETFs in two years.