If one were to name key industry-wide buzzwords in asset management over the past few years, ‘ESG’ would easily be at or close to the top of the list.
In a recent report by DWS Research, we learn how a proactive ESG regulation environment, driven by investor demand for increased transparency by asset management firms, has improved the overall measurement of ESG AM performance, and where standardization is still lacking.
Below we highlight a few key findings from the report:
- Sustained resiliency: Overall, ESG funds and indices have outperformed their parent benchmarks, and notably, ESG ETF equity flows proved to be considerably more resilient than their non-ESG ETF equity counterparts, a very positive characteristic in times of market turmoil.
- ESG investments in 2019: In the United States, new money inflows into ESG mutual funds and exchange traded-funds hit a record high of US$20 billion, almost quadruple the number in 2018; in Europe, new inflows of €120 billion into European ESG funds has increased the total assets in European sustainable funds to €668 billion in 2019, 56% higher than that in 2018.
- Policy-led initiatives: Policy makers and regulators like the European Central Bank are forcing an ESG agenda, by addressing sustainability considerations within the central bank’s monetary policy framework. Their role in pushing through regulation will continue to determine the progress we see in ESG investing.
- There are 3 main data obstacles when it comes to assessing firms’ credentials in respect of ESG KPIs: the first is whether ESG integration equates to financial integration, meaning ESG factors can have a material effect on investment decisions, the second is how proxy voting can be manipulated by asset managers to demonstrate more favorable results, and the third is the inconsistency of the inclusion of the ESG data sources used by firms as a base of information for ESG investing.
The DWS Research report highlights the need for asset managers and asset owners to continue their collaboration in establishing a dependable framework for ESG KPIs, and for regulatory bodies to maintain the imposed pressure on the industry to standardize ESG integration.
You can read the full DWS Research report here.