ESG interest reached a tipping point in 2020, now accounting for a third of the $51.4 trillion in U.S. assets under professional management, according to the Forum for Sustainable and Responsible Investment’s 2020 trends report.
As investor interest has swelled, ESG funds may have reached a tipping point of their own. At least 20 new ESG funds have launched in each of the last six years, and by mid-year, 2020 was on pace to experience a record number of ESG fund launches.¹
Other data also points to a more competitive ESG market. Data from Sustainable Research and Analysis found that in 2010, the 10 largest ESG funds held 70.6% of all sustainably invested assets under management. A decade later, those 10 largest funds held only 38% market share.2
While increased competition can be good for the industry, a growing number of ESG funds also means more due diligence work for advisors and consultants. The work won’t be easy, either. As more investors gravitate toward ESG investing, money managers will continue to launch and market ESG-labeled strategies, and researchers will have to determine their true commitment to the space.
This summer, we published an ESG due diligence investment brief, designed to help researchers match their clients’ ESG intentions with the appropriate strategy. As part of that brief, we offered a set of baseline questions advisors can ask asset managers to gauge their dedication to ESG investing. Those questions include:
- How long is your history in the ESG space?
- Does your firm simply exclude non-ESG friendly companies, or do you have a dedicated process for selecting and evaluating companies on ESG criteria?
- Does your firm have a dedicated ESG analyst?
- Do you rely on external ESG ratings for investing, or do you do your own research?
- What are your structural risk controls to ensure the strategy does not stray too far from its benchmark?
- How often have you voted proxies independent of management?
- Can you share a story that highlights your team’s corporate engagement?
Interested in reading this brief? Click on the graphic below to download your copy.
¹ https://www.morningstar.com/articles/989209/esg-funds-setting-a-record-pace-for-launches-in-2020
2 https://www.cnbc.com/2020/12/21/sustainable-investing-accounts-for-33percent-of-total-us-assets-under-management.html