Thursday, 01 April 2021 17:47

Are the Narratives Around ESG Asset Flows Real?

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(New York)

Any advisor reading ESG headlines over the last year will have seen some big numbers coming out of the sector (e.g. ESG sees $x trillion of asset flows). One such headline recently was “one third of U.S.-domiciled, professionally managed assets addressed ESG considerations as of the end of 2019”. The report, from US SIF Foundation, claimed that $17.1 tn was parked in sustainable investing strategies. However, this can be highly misleading. The reason why is the criteria for what can be considered “ESG” is quite broad. While the US SIF report did have some rigor in defining ESG, the way it conducted its study meant that any managers taking into account any number of considerations that could theoretically be considered related to ESG, were called “ESG” assets.

FINSUM: ESG is growing nicely, but there does seem to be a lot of “fudge” in the asset reporting. Part of this likely comes down to what we might call “de facto” ESG. In other words, a lot of ESG funds are dominated by tech stocks/assets. Many of these inflows have little to do with ESG imperatives (they are more pure return-driven), but can nonetheless be referred to as “ESG” since they are technically environmentally-friendly.

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