US advisers shun ESG over performance concerns: report

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Financial advisers based in the United States are shying away from ESG investments due to concerns that performance might be compromised, according to a new report released by Cerulli Associates.

The study ghas been highlighted in the June 2018 issue of The Cerulli Edge – US Monthly Product Trends Edition which analyzes mutual fund and exchange-traded fund (ETF) product trends, but also provides special coverage on the integration of environmental, social, and governance (ESG) factors into investment strategies.

The Cerulli report states that for US advisers, one of the biggest hurdles in turning interest into actual investment, both by users of ESG and non-users, is the perceived impact on investment performance.

Among ESG users, only 19% state that sustainable investment returns are a major factor driving their demand for ESG. On the opposite side of the fence, 35% of advisers that said that they are not currently using ESG told Cerulli that a negative impact on investment performance is a “significant factor” preventing them from implementing ESG.

Asset managers have prioritised incorporating ESG factors/criteria into their investment processes, but conversation with distribution partners has “not necessarily led to actual investment among financial advisers”.

Cerulli report states: “True ESG integration requires the application of material ESG factors with intentionality, in a process driven by robust data that is aggregated from both proprietary and third-party sources.”

Elsewhere in the report, US mutual funds continue to lag ETFs in terms of overall asset growth, increasing 0.8% compared to 2.1% in May. Despite the drop in the growth figure, assets still total approximately $14.9trn.

ETFs collectively added net flows of $33.7bn, of which most are coming from index-based products. ETF assets cleared the $3.5trn threshold as the vehicle continues to push back toward its January 2018 high of $3.6trn, Cerulli said.

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Gary Robinson

Commercial Director, Head of Video at International Investment.