European Traditional Investment Managers Increase Focus on ESG

Tue 06 Jul, 2021 - 12:08 PM ET

ESG Adoption Gains MomentumEuropean traditional investment managers (IMs) are increasingly focusing their fund offerings on ESG (environmental, social and governance) factors, particularly environmental sustainability.The process has accelerated, helped by the EU’s Sustainable Finance Disclosure Regulation (SFDR), which aims to make funds more transparent and easier to differentiate with respect to sustainability. Sustainable fund assets under management (AUM) were 11% of European AUM at end-2020. Net inflows for sustainable funds were a record EUR233 billion in 2020 according to Morningstar, more than twice the amount for 2019, with 505 sustainable funds entering the market. Most demand for sustainable products in recent years has been from institutional investors, but there are signs that ESG momentum is gaining traction with retail investors.Fitch Ratings surveyed rated traditional European IMs after the phase one implementation of SFDR on 10 March 2021. We found that rated IMs classify a significant proportion of their funds as Article 6 (non-sustainable, do not integrate any kind of sustainability into the investment process).However, there is momentum towards Article 8 (promoting environmental or social characteristics) and Article 9 classifications (having sustainable investment objectives).Sustainability has become a differentiating factor for investors, leading to increasing pressure on European traditional IMs to meet the stricter ESG criteria for Article 8 and Article 9 classification. IMs that lag could lose market share and AUM unless they can differentiate themselves in other ways, for example, by superior performance net of fees.

Download Now

Thank you. Your download link will be emailed to you shortly.