Background and Growth: Between 2017 and 2022, ESG investing captured both investor and public attention. Its principles—centered around sustainability, ethical practices, and responsible corporate behavior—resonated widely. However, recent times have seen some pushback against ESG, highlighting the need for nuanced discussions.
Continued Relevance: ESG remains on an upward trajectory. The performance of ESG funds and exchange-traded funds (ETFs) has been impressive, often matching or surpassing traditional counterparts. Regulators, too, emphasize climate change risks and seek improved standards and disclosures to assess and mitigate these risks effectively.
Performance Insights (2023): In terms of returns, sustainable funds outperformed traditional funds in 2023. Their median return stood at 12.6%, compared to 8.6% for traditional funds. This outperformance extended across both equity and fixed-income asset classes. Notably, this trend isn’t an anomaly; sustainable funds have consistently outperformed traditional funds since 2019, except for a blip in 2022. Similarly, ESG ETFs demonstrated their prowess, outperforming traditional ETFs in three out of the last four years.
Sector Considerations: One significant difference lies in investment exposures. Sustainable funds tend to underweight the energy sector. In 2023, clean energy faced challenges due to sharp interest rate increases, impacting its performance relative to the broader market.
Organic Growth and Industry Landscape: Despite headwinds, organic fund flows into sustainable funds remained positive. These funds attracted net inflows equivalent to 2% of their starting base. Remarkably, this growth rate outpaced the overall fund industry, which saw a more modest organic growth of just 0.17%. By the end of 2023, ESG/sustainable funds accounted for 6.6% of the entire fund universe.
ESG investing isn’t merely a trend—it’s a fundamental shift toward purpose-driven portfolios.
ESG Investments will continue to expand, reaching a staggering $100 trillion by 2030
In 2018, over $30 trillion in assets under management were already aligned with ESG (environmental, social, and governance) principles, as reported by the Global Sustainable Investment Alliance. Looking ahead, Deutsche Bank forecasts that ESG investments will continue to expand, reaching a staggering $100 trillion by 2030.
Let’s dive into some ESG (environmental, social, and governance) investment statistics to give you a better understanding of this growing trend:
Global ESG Assets:
- At the end of the first quarter of 2022, over $2.77 trillion were held in ESG mutual funds and ESG exchange-traded funds (ETFs) globally.
- Despite market fluctuations, approximately $97 billion was invested in sustainable funds worldwide during the first quarter of 2022.
Investor Consideration of ESG Issues:
- 89% of investors now consider ESG factors in some form as part of their investment approach.
- This shift reflects a broader awareness of global challenges such as climate change and social inequalities. Investors increasingly want their capital to have a positive impact on society beyond just financial returns.
Corporate Adoption of ESG Initiatives:
- About two-thirds of privately-owned companies have ESG initiatives in place.
- As of 2020, 88% of publicly traded companies had some form of ESG initiative.
- These initiatives range from environmental conservation efforts to social responsibility programs and improved governance practices.
Consumer Sentiment:
- 76% of consumers are willing to stop buying from companies that treat the environment poorly.
- Conversely, 88% of consumers express greater loyalty to companies that actively support social and environmental initiatives.
In summary, ESG investing is no longer a niche concept—it’s becoming the standard in the investment industry, particularly in Europe where sustainable fund assets are concentrated. By integrating non-financial factors into investment decisions,
ESG investors aim to create positive impact while still achieving their financial goals. If you have any more questions or need further insights, feel free to ask!
