Assets in dedicated environmental, social and governance (ESG) mutual funds, ETFs, institutional mandates, and private funds are on track to hit $30 trillion by the end of the decade, Broadridge Financial Solutions has claimed.
According to the ESG and Sustainable Investment Outlook whitepaper, which used Broadridge’s Global Market Intelligence Platform to track institutional and retail products, nearly $9 trillion of net new inflows are on offer through expanding opportunities, including thematic strategies, climate transition and net zero solutions.
Net flows into ESG mutual funds and ETFs have risen to $577 billion in the nine months to the end of September 2021, surpassing last year’s full total of $355 billion.
Jag Alexeyev, head of ESG Insights at Broadridge Financial Solutions, said: “ESG strategies accounted for just 11% of overall mutual fund and ETF assets but captured 30% of inflows during the 12 months through September 2021.
“While growth remains strong, the complexities and costs of ESG implementation have risen, and fund selectors have begun to ask harder questions.”
Greenwashing is also another key reputational risk that firms must address, Alexeyev added. In addition, improving a manager’s sustainable investment capabilities, enhancing transparency, and amplifying communication of results can help establish credibility and strengthen client relationships.
Key highlights of the report showed that among actively managed strategies, ESG drove 62% of flows in cross-border European and international markets.
Meanwhile, the European Union’s Sustainable Finance Disclosure Regulation (SFDR) has reshaped the sector. In response to SFDR, firms identified more than 5,700 funds as Article 8 ESG or Article 9 sustainable investment products, with combined assets of $4.1 trillion as of September 2021.