Displaying items by tag: esg
The Department of Labor made a critical move this week in announcing a regulation that is likely to affect almost all advisors. During the Trump administration the DOL made a rule that made investing client Dollars in ESG funds very complicated from a compliance perspective. It has long been expected that the Biden administration would try to undue that rule and make one of its own. It appears that day is here as the DOL announced a new rule (the wording of which is still unclear) which would clear up the uncertainty and risk advisors have in recommending ESG funds.
FINSUM: This will become more clear in the coming days, but the bottom line is that it appears the Biden administration is trying to take the doubt/uncertainty/risk out of ESG for advisors. And good thing because demand for ESG products has surged this year.
The bond market has had a good year. For the last several months, yields have been falling and corporate bonds have seen big gains this year thanks to better earnings and ratings upgrades. Munis have been a big success too. But one area has been even hotter: ESG bonds, which have will see over $1 tn of issuance this year. To put that in perspective, it would be more than double what was issued in 2020. JP Morgan explained the big surge in ESG best, with their head of ESG debt capital markets saying “What began with ‘why should I issue?’ is now ‘why aren’t you? … your absence in the market says something now”.
FINSUM: ESG is fully mainstream now and seems to be gathering more and more assets/issuance. What will this do to issuance in clear non-ESG sectors?
Environmental, social, and governance is the well-known splash in the investment world but…see the full story on Magnifi’s site
Many investors are worried that the huge growth in ESG assets might be causing a bubble in the most common stocks in ESG funds. However, the reality is that they are not. According to Bridgewater Associates: “The shift to ESG appears to be still in its early innings. Investor positioning in sustainable equities is not yet overextended … The US ESG index looks very similar to the aggregate market, and much less frothy than stocks that have been most popular with retail investors where we think valuations are most stretched”.
FINSUM: In other words, despite all the hype about ESG asset growth, overall valuations are in line with the broader market so there is no specific risk to ESG funds.