Environmental, social, and governance investment issues, known as ESG, will soon be just a regular part of assessing securities as a new generation enters the market, according to industry experts.
In his latest blog, Detlef Glow, head of EMEA research at data monitor Lipper, said as today’s young people moved into investment markets, fund managers failing to use ESG factors would ultimately fall behind.
“Demand from investors for products using a sustainable investment approach should increase, since Generations X and Y have just started to become investors.”—Detlef Glow, Lipper“There is evidence that investors from Generations X and Y are more demanding with regard to information about how their money is invested,” said Glow. “In addition, surveys have shown that investors from these generations are also more tuned to a lifestyle of health and sustainability and want to invest their money in funds that have similar goals in place. This means the demand from investors for products using a sustainable investment approach should increase, since Generations X and Y have just started to become investors.”
Glow said a “lack of education” was a key factor of why ESG criteria was not being used widely in the asset management industry, and for some, would not be adopted in the short term.
“But, with the turnover in staff and the educational efforts by industry associations and promoters of advanced education courses, the use of ESG criteria will become more popular over time,” he said. Glow added that early adopters of these criteria may succeed by building up a reputation as thought leaders, along with a performance track record, prior to their competitors.
Elsewhere, investment research firm Morningstar announced its first ESG scores for mutual and exchange-traded funds. The company said a February study by the Morgan Stanley Institute for Sustainable Investing found that 71% of individual investors were interested in sustainable investing.
Michael Jantzi, CEO of Sustainalytics, which is providing data to Morningstar, said: “ESG considerations, once viewed from the sidelines, are increasingly front and centre for fund investors.”
Jon Hale, Morningstar’s director of manager research, North America, said investors would be able to compare funds across categories, relative to benchmarks, and over time using ESG factors. They would also be able to drill down to see scores for each of the three ESG pillars.
Related: The Explosive Growth of ESG Managers; ESG Momentum Tilt Shows Outperformance; Hauling Finance Out of the ’50s