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Big rise predicted in next two years of fund managers labelling product as ESG

Take up mirrors growing interest from asset owner client base.

Asset managers are planning a significant step up in selling their funds under ESG or responsible investment labels in the next two years to meet growing demand from asset owners, according to a survey by BNP Paribas Securities Services, titled: “Great Expectations: ESG – What’s next for asset owners and managers”.
The survey was answered by 223 asset managers, of which 80% incorporate ESG factors in their investment strategies today.
Of this 80%, more than half (54%) said they would market 50% or more of their funds as ESG or RI within the next two years. That compares with less than 25% of their current fund range.
The potential rise in the marketing of ESG funds tracks planned increases in investment interest from asset owners.
Nearly half of the 77% of asset owners surveyed (228 in total) said they plan to invest 50% of their assets in strategies that incorporate ESG factors within two years, up from 25% of assets today.
Significantly, the survey gathered broad international responses from the combined total of 451 asset managers and asset owners surveyed, with respondees split relatively evenly across APAC (29%), Europe (38%) and North America (33%).
Sid Newby, head of asset manager and asset owner sales at BNP Paribas Securities Services, said: “There is set to be a huge shift in the way investments are selected over the next two years. It is widely accepted that incorporating ESG can be beneficial to returns, but what we will see now is firms really putting investment weight behind this.”The investor demand is both institutional and retail, the survey says, as both are asking for “greater consideration” of and “disclosure around ESG issues”.
Respondents said one problem to date in the growth of ESG has been the quality of relevant data available to investors, with more than 55% of respondents citing it as a barrier to take-up today. But the investors said they expected the lack of robust data to be less of an issue in two years (dropping to 15%).
Instead, they said a lack of advanced analytical tools and skills would be more likely to hinder the further adoption of ESG (up from 9% to 23% of investors who cited it as a potential barrier).
In terms of the actual data that investors find important for improving investment returns, the survey found that environmental information was deemed of the highest value by 42% of respondents, which BNP Paribas suggested could be due to investors anticipating future green legislation and the transition to a low carbon economy.
Trevor Allen, product specialist, investment risk and performance at BNP Paribas Securities Services, says: “While the industry expects to capture data effectively within two years, the ability to draw conclusions from the data will remain a challenge. That is where smart data, artificial intelligence and ESG specialists will step in.”
The survey says this difficulty to interpret ESG data could also become more profound as the need rises for predictive analytics able to outline different scenario analyses, backed by the likely findings of the forthcoming report by the Task Force on Climate-related Financial Disclosures (TCFD).