Disclaimer text

Decline
Accept
Guest
https://www.aegonam.com/en/search/
>
Menu

Stat attack

Stat attack
Back
ARTICLE TYPE
Sustainability Soapbox
TOPIC
Responsible Investing
PUBLISHED
April 05,2023
READ TIME
5 mins
AUTHOR
Iain Snedden
SHARE
Back
ARTICLE TYPE Sustainability Soapbox
TOPIC Responsible Investing
PUBLISHED April 05,2023
READ TIME 5 mins read
AUTHOR Iain Snedden
SHARE

Who doesn’t love studying statistics? Probably quite a lot of people… but when you work in asset management, there’s no escaping it. The past year has brought a number of prominent topics to the fore in sustainable investing and below we look at some of the statistics behind these topics, and what they might tell us going forwards.

Firstly, exactly how much is invested in sustainable strategies? Data from Morningstar[1] shows that assets in sustainable strategies globally hit $2.5 trillion at the end of 2022. This was slightly down from its peak of around $3.0 trillion a year before, but with markets selling off materially last year, a decline in absolute terms is unsurprising.

 

Perhaps more informative is the trend in net flows – i.e., removing the effect of market movements and looking solely at how much people are contributing (or taking away) from funds in the space. Happily, the picture is more favourable here, with net flows remaining positive throughout 2022 and picking up in the final quarter. Given the difficult market backdrop, this underlines the enduring demand for sustainable funds and is in stark contrast to the broader market, which saw $200 billion of net outflows in quarter four.

 

What is really striking about these numbers is the regional bias. Sustainable investing remains very much centred in Europe (83% share of assets). Despite being the world’s largest market, the US lags far behind with an 11% share, and Asia Pacific ex-Japan has just 2%. Despite these regions being home to many fantastic sustainable companies and a good proportion of the stocks held across sustainable portfolios, they remain massively under-penetrated in terms of actual client allocations, which seems a strange paradox.

 

Surely, in time, these numbers will increase and data on investor preferences seems to back this. For example, a survey by PwC[2] found that 8 out of 10 US investors planned to increase their allocations to ESG strategies over the next two years. Furthermore, the same survey found that 39% of the institutional investors surveyed had decided not to invest with an asset manager or had stopped investing with one due to perceived shortcomings in their ESG products and that a further 50% would consider doing so (although they hadn’t done so yet). Clearly, managers are rightly being held to high standards when it comes to their ESG offerings. 

 

Performance will clearly play a significant role in helping or hindering the future trajectory. On this front, the past year has been tough for sustainable funds, although they have been far from the only group to suffer. Data from RBC[3] shows that the median globally focused sustainable equity fund underperformed its traditional equity counterpart by 2.4 percentage points in 2022. Disappointing, for sure, but this was after a three-year run of sustainable funds outperforming, which means that the sustainable category outperformed by 0.5 and 0.7 percentage points over three and five years, respectively.

 

That sustainable funds underperformed last year is no surprise, given the shape of markets. The top performing sector in the MSCI ACWI (and the only one to post a gain in absolute dollar terms) was energy, which returned 34.5%[4]. This was 38.4 percentage points ahead of the next best performer, utilities. In general, the sectors that performed best last year are not typical hunting grounds for sustainable investors and once this effect is accounted for by looking on a sector-neutral basis, data by RBC shows that stocks with low ESG risk ratings on Sustainalytics underperformed those with high ratings by a much smaller margin[5]. 

 

Finally, regulation is a hot topic, with the EU’s SFDR in particular grabbing the headlines. Several managers found that they had been overly optimistic in categorising funds as ‘Article 9’ (having a sustainable investment objective) and had to row back on this when the regulations became clearer. An incredible 307 funds, with assets of EUR 170.1 billion were downgraded from Article 9 in quarter four alone[6]. In an industry that continues to battle against greenwashing, this has been an unhelpful story.   

 

Overall, these statistics show that sustainable investing remains in good health, despite the performance and regulatory challenges thrown at it in the past year. The coming months are likely to see continued debate around the ‘anti-ESG backlash’ in the US, particularly due to moves by some states to disinvest from and blacklist asset managers whom they see as prioritising ESG issues at the expense of investing in (polluting) industries that form an important part of the economies in those states. Hopefully, this doesn’t derail the positive momentum that genuine sustainable investors have worked so hard to build, and with the Biden administration passing the Inflation Reduction Act and making it easier for retirement plan sponsors to include ESG funds in the line-up of options for employees, these should act as important counterweights to the more short-sighted actions taken by some states. 

 

 

 

[1] Morningstar Global Sustainable Fund Flows Report, Q4 2022

[2] PwC, Asset and wealth management revolution 2022: Exponential expectations for ESG

[3] RBC, January 2023

[4] Source: Factset, Aegon AM

[5] RBC, 2023

[6] https://www.responsible-investor.com/passive-downgrades-drive-great-reclassification-of-article-9-funds/

Important disclosures

More about the authors

Iain Snedden Senior Investment Specialist - Equities

Iain Snedden, investment specialist, is a member of the global equities team covering ESG, income, regional and market neutral strategies.

View Profile


Read next