ESG accounts for 84% of all equity investments since 2019: research

ESG accounts for 84% of all equity investments since 2019: research
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ESG funds have accounted for 84% of investments into equity funds in previous two years, with net inflows rising seven-fold since to a total of $15.1bn out of $18.1bn, according to the latest figures from Calastone.

There is a growing global shift in investing from active to passive funds, with active funds seeing $5.4bn in outflows in the past two years, while net inflows into passive/index funds reached $24.5bn, according to Calastone's global investor report. This switch to passive is consistent across all global markets, the report added.

That said, ESG funds have enabled active equity funds to remain resilient, with $84 out of every net $100 invested entering the sector - a total of $15.1bn out of $18.1bn since 2019.

In the last two years, European investors have switched from non-ESG to ESG funds, selling $7.5bn of the former and buying $4.3bn of the latter."

Net inflows rose seven-fold between 2019 and 2020, even though overall turnover in ESG funds only doubled. The last four months of 2020 saw greater inflows than the rest of 2020 and all of 2019 combined.

UK and European investors have been most active buyers of ESG funds. In the last two years, European investors have switched from non-ESG to ESG funds, selling $7.5bn of the former and buying $4.3bn of the latter.

Based on fund flows, Australian and Asian investors appear to be about two and three years behind the curve respectively, though appetite is growing, the data shows.

Three quarters of this new ESG capital ($11.3bn) flowed into active funds so the rapid growth is proving a boon to asset management houses under pressure from index funds.
Without accounting for ESG funds altogether then traditional active funds have shed $16.8bn over the past two years.

As asset managers launch more ESG funds, fees have come under pressure, falling faster than non-ESG strategies. Research by Morningstar in October last year found that European investors are now paying less for ESG funds than for their conventional counterparts.

The report noted that passive ESG funds are growing too, "though they are more expensive than conventional index trackers", leaving investors to ask themselves whether simply tracking an external ESG benchmark is rigorous enough.

The figures also reveal that Asian investors have shown no interest at all  in passive ESG strategies.

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