If any ESG doubters remain in the asset management world, assets inflows to responsible investment products may well force them to climb aboard the sustainable finance bandwagon.
Research from Investment Metrics, a Confluence company, of institutional net flows during the turbulent times of 2022 reveals a strong investor preference for ESG products.
Of the 3,800 equity products from over 750 asset managers and over 1,900 fixed income products from over 290 firms, providers with demonstrable ESG credentials drew the biggest crowds.
Looking at the top 10 active manager public equity portfolios by institutional in-flows in 2022, the first placed RBC Global Asset Management’s Global Equity Concentrated fund, which attracted USD2.007 billion in 2022, was described by Investment Metrics as “a firm that has highlighted its ESG analysis capabilities and is resonating with institutional investors”, and is classified Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
Meanwhile despite a challenging year for the emerging markets, two of the top 10 asset-gathering portfolios were EM equity products; which Investment Metrics attributes, at least in part, to their ESG credentials.
Schroders Asset Management’s Emerging Markets equity portfolio was placed second with USD1.985 billion of inflows, while T. Rowe’s Emerging Markets Discovery equity portfolio came eighth with USD1.281 billion.
Scott Treacy, research consultant at Investment Metrics, a Confluence company, says both managers “invested heavily in their ESG analysis platforms and distinguish themselves as leaders in ESG analysis”.
Treacy adds: “Some active asset management firms were able to thrive in a difficult capital market environment… The demand from institutional investors to incorporate ESG analysis will only escalate, and those firms that are able to demonstrate their agility will obtain more institutional plan assets.”
Marina Severinovsky, head of sustainability, North America at Schroders, says: “As the performance of naïve, passive ESG strategies has faltered and the regulators circle the wagons, sustainable investing is at a critical juncture. Investors are clear that they need more quantifiable evidence of the value and impact of ESG, and more clarity and transparency into how this investing is practiced and measured.”
Investment Metrics also highlighted the success of impact funds in attracting assets, noting that Baillie Gifford’s Positive Change portfolio has gathered “a substantial amount of institutional assets over the past two calendar years”.
Rather than excluding bad actors, the portfolio invests in companies that deliver a positive impact to society; a strategy that saw it amass USD956 million in assets last year.
“The belief is that the demand for these products will grow as economies shift to a sustainable future,” Treacy says.
The ESG trend was less apparent in the fixed income space, instead it was long duration bonds that dominated the top ten asset gatherers for 2022.
Despite the miserable conditions for the asset class which saw the Bloomberg US Long Treasury index down 29 per cent last year, half of the top 10 products were long duration portfolios.
Taking top place was NISA Investment Advisors 15-year STRIPS boasted inflows of USD16.638 billion, far outpacing next place PIMCO whose long-term credit bond fund attracted USD9.517 billion.
Sustainable bond funds did attract inflows, but these lagged considerably their mainstream counterparts.
In the ESG space, Sage Advisory’s ESG intermediate term fixed strategy ranked number one with USD659 million of inflows.