PLANADVISER - July/August 2020 - 10

data points //
The Virtue in ESG Factors
These investing strategies reveal a rare source of rapid growth
A
mid a pandemic, social unrest
and record-high temperatures,
environmental, social and governance
(ESG) strategies appear to be
having a moment. Recent data from the
market intelligence group at Institutional
Shareholder Services Inc. (ISS)-
the parent company of PLANADVISER-
show ESG-focused strategies were a
rare source of rapid growth for asset
managers so far this year. While
long-term funds suffered nearly $100
billion in outflows through June, ESGfocused
funds raised $21 billion in net
new money.
The interest partly stems from a
desire from investors to align their
investments with
their
views
on
matters such as climate change and
inequality. A growing cohort views
the use of ESG factors as a prudent
risk control. Vulnerability to climatechange-induced
flooding is a risk just
like holding too much debt.
Because investors pay too little
attention to ESG-related risks,
measuring them is a potential path to
better returns. The relatively strong
performance of ESG-oriented strategies
in this year's topsy-turvy first
half bolsters this argument, though
whether such success stems from luck
or design remains under dispute.
The main beneficiary was BlackRock,
whose CEO placed sustainability
at the core of the company's future
investment plans. BlackRock's suite
of iShares ESG ETFs [exchange-traded
funds] soaked up approximately half of
the 2020 industry total for the first half
of the year. Assets in ESG-focused funds
reached $192.4 billion in June, a 10.8%
increase since the start of the year.
While some demand
is
from
in-house-the ETFs are holdings in
many BlackRock funds of funds-the
surge would not have happened without
buy-in from large advisory platforms, a
sign of broadening acceptance of ESGdriven
strategies within intermediaries.
For instance, institutional holdNet
Flows Into ESG-Focused Funds
n Mutual funds n ETFs
$10b
$15b
$20b
$25b
$5b
$0
2015
2016
2017
2018
2019
Data as of June 30, 2020. Mutual fund data includes exchange-traded mutual funds.
Largest Recipients of ESG Flows, Year to Date
Manager
ESG Net Flows
YTD ($mm USD)
BlackRock
Eaton Vance
The Vanguard Group
Dimensional Fund Advisors
Brown Investment Advisors
Nuveen
TIAA
Morgan Stanley
DBX Advisors LLC
Eventide Asset
Data as of June 30, 2020
Source: ISS Market Intelligence Simfund
ings data filed with the Securities and
Exchange Commission (SEC) indicate
at least $700 million of the $5.2 billion
in net flows to the iShares U.S. ESG
strategy came from Envestnet, the
largest turnkey advisory platform in
the U.S.
So far this year, active investors have
gravitated to seasoned ESG specialists
such as Eaton Vance's Calvert unit.
The combination of recent guidelines
from the Department of Labor (DOL),
plus findings in a recent ISS Market
Intelligence pulse survey indicating
26% of respondents found ESG criteria
to be less important, could dampen
demand. Yet, there is plenty of room for
growth. -Christopher Davis, head, U.S.
fund research, global research and advisory
solutions, ISS Market Intelligence
$10,546.4
$2,076.1
$1,617.2
$1,470.5
$835.7
$738.1
$714.7
$712.2
$605.7
$444.9
ESG Assets
($b USD)
$19.9
$21.6
$10.6
$9.6
$3.3
$1.5
$11.0
$8.4
$2.3
$5.1
YTD
YTD Asset
Growth
113.1%
9.4%
16.6%
9.4%
55.0%
95.2%
7.1%
22.8%
33.9%
23.4%
10 | planadviser.com July-August 2020
http://www.planadviser.com
PLANADVISER - July/August 2020

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