The Rising Tide of ESG Investment

More financial institutions are deploying a broader range of environmental, social and governance (ESG) strategies to meet rising demand, according to a new survey.

A report from Natixis Investment Managers, released last week, surveyed 3,600 professional investors globally, including 400 fund selectors, about the issues that drive their decisions on ESG investing.

Approximately three-quarters of professional investors – including 77% of the gatekeepers who select funds for their firm’s investment advisory platform – are now implementing some form of ESG strategies, up from 65% in 2018.

Sceptics feared that investors would swiftly retreat from their climate pledges as markets plummeted at the start of 2020, yet the pace of growth accelerated in 2020, amid record inflows into ESG funds and an unprecedented number of ESG product launches.

“The rapid global adoption of ESG has raised questions about whether the momentum building around ESG will continue or if it’s building toward a bubble,” said Harald Walkate, head of ESG for Natixis Investment Managers.

“The answer lies in greater clarity about what investors ultimately want to achieve, not only to deploy ESG strategies that align with their values but also to set realistic expectations for both financial results and societal impact.”

This year, 68% of professional fund selectors plan to further expand their firm’s ESG offerings. Their primary reason for doing so is because of investor demand, which fund selectors believe stems from investors’ heightened social awareness (75%) and the fact that ESG investing has now reached critical mass among mainstream investors (50%).

This comes as no surprise amid a period of rapid social change – not just a pandemic, but climate risks, racial inequality and depressed economies testing society’s resilience. Investors have become more interested than ever in the ESG standards of the companies they invest in and are starting to strongly identify with social and environmental causes.

Other factors respondents believe are driving demand for ESG include investors’ desire to be part of a greener economy (42%) and concerns about climate change (36%).