All funds will be ESG in five years, professional investors predict

Research shows momentum towards ESG has accelerated since the Covid-19 pandemic. 

Three-quarters of UK fund buyers say they expect all funds to incorporate ESG (environmental, social and governance) factors in five years’ time as sustainable investing gathers pace.

A survey of 200 professional fund buyers by CoreData carried out in November and December 2020 found that two-thirds of respondents globally believed all funds will be ESG funds within five years. Those in the UK were especially confident in the prospects for ESG investing, with 73% predicting the same.

Professional investors in the US were much less confident, at 50%, perhaps demonstrating that, with the previous administration unsupportive of ESG investing, the American market is still behind the curve.

The research also showed that momentum towards ESG has accelerated since the pandemic. Six in 10 global professional investors said they had increased their focus on ESG during the coronavirus crisis. The UK leads the way with 81% of investors boosting their ESG investments compared to 42% in the US.

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A rising tide

Half of fund buyers globally said ESG funds tend to outperform non-ESG counterparts, and this view was most strongly held in the UK at 65%, 60% in Europe and 31% in the US.

Meanwhile, most respondents said active managers will be able to capitalise on the rising tide of sustainable investing. Three-quarters of respondents globally said increasing demand for ESG will benefit active funds, with this figure rising to 92% of UK respondents.

But as sustainable investing becomes more widespread, there are concerns about companies only paying lip service to ESG. Eight in 10 global respondents said ‘greenwashing’ will become more prevalent as demand for ESG increases.

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An ESG bubble?

The study also showed that nearly 28% of global fund selectors think ESG represents a market bubble that will eventually burst. This belief was held most strongly by respondents in Asia (50%) and least by those in the UK, at 12%.

“The pandemic has helped reset humanity’s moral compass and encouraged people to favour investments aligned with their beliefs and values,” says Andrew Inwood, founder and principal of CoreData. “There is a growing body of evidence indicating that ESG can help enhance performance and improve risk management, all of which means the ESG story has a long way to run. ESG is clearly a megatrend that is here to stay.”