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ESG market tops $100 trillion

By Sarah Kendell
 — 1 minute read

Global money invested in ESG assets soared to over US$100 trillion amid the pandemic, but as the market becomes increasingly sophisticated, fund managers will need to do more than simply releasing a vanilla ethical offering, according to new research.

Addressing the InvestorDaily ESG Summit 2021, CoreData principal Andrew Inwood said ESG investing had “never been more exciting than it has been in the past 12 months”, with increasing global tax incentives for green investing pushing more funds into the sector as investors searched for new opportunities in a low-interest rate world.

CoreData research indicated funds invested under the UN Principles for Responsible Investing had soared from US$6 trillion in 2006 to US$103 trillion in 2020, with more than half of global institutional investors now fully integrating ESG into their investment approach.

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“The low inflation environment means the way money is moving around has started to change. While returns are low, people are looking for opportunities and people inside the ESG market have been outperforming,” Mr Inwood said. 

“While that’s happening, money is starting to shift into the space where people are chasing better opportunities and picking up trends that are impacted positively by taxation structures.”

Only the US market had so far lagged in ESG take-up, with only 30 per cent of institutional investors fully integrating it into their strategies, but Mr Inwood said this was likely to change with the new Biden administration.

“Biden’s signing of the Paris accord will mean a fundamental shift in the US market, which will force more money into the segment,” Mr Inwood said. 

“Good [ESG] assets will become more expensive – that’s a part of the process you want to be participating in and starting to become more aware of in your business.”

As the market matured investors were starting to become more discerning about what constituted a quality ESG investment, with 80 per cent of investors globally agreeing that “greenwashing” was likely to become more prevalent.

“Greenwashing refers to trying to take an old company and paint it green so people don’t know what they’re investing in – those people will try and dress their opportunity as the best opportunity,” Mr Inwood said.

“People are going to start to become more skeptical of what’s going on [with ESG], so being careful about who you select and how you move into this space is going to be a challenge.”

CoreData research also indicated that local investors were frustrated by the lack of transparency in ESG investing, with 54 per cent of Asia-Pacific investors saying there was still no clear link between ESG and performance, and 44 per cent saying the sector suffered from a lack of transparent disclosure by companies.

“People can’t correlate the link between ESG and performance; this is still loosely correlated,” Mr Inwood said. 

“Being better at articulating this and making sure you understand the risks in this space is going to make it possible for the market to benefit. 

“The other two big fears is that companies aren’t transparent enough, and the third one is people don’t have enough benchmarks yet. As the opacity is reduced, the ability to buy in this space is going to be accelerated.” 

This year’s inaugural InvestorDaily ESG Summit attracted over 700 registrations, with Trish Gregory of Findex taking out the survey prize for day 2 of the event while Damian Smith of OYA Financial Services won the overall points prize for the conference.

Stay tuned for more informative ESG content for financial services professionals, with the upcoming launch of our dedicated ESG weekly bulletin. 

 

ESG market tops $100 trillion
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