Net flows to long-term “responsible” ESG funds quadrupled in 2019 to $20 billion, from $5 billion in 2018, and continued to grow during the first half of 2020 to reach $21 billion, according to new research from Broadridge Financial Solutions.
The firm also found that a majority (68%) of ESG assets in the U.S. are now in actively managed funds, and are expected to reach $300 billion in the United States by the fourth quarter of 2021.
“From both a supply and demand perspective, we have witnessed a shift toward achieving positive environmental and social outcomes alongside competitive investment returns,” Jag Alexeyev, Director Distribution Insights at Broadridge Financial Solutions, said in a statement. “Active managers are in the driver’s seat when it comes to ESG, but in order to maintain their edge in this segment, they need to highlight their agility to proactively manage risks, leverage active ownership, pursue dynamic high-conviction strategies and deliver sustainable outcomes.”
Broadridge claims ESG strategies represent an “attractive segment for active managers, especially in equity strategies.”
Flows into ESG active equity funds during the trailing 12 months reached 15% of average assets in Europe and International cross-border markets, and 10% in the U.S.
Advisor use of ESG funds
A separate survey from Broadridge of over 400 financial advisors finds that 81% of wirehouse advisors have assets in ESG products today, followed by the IBD (68%) and RIA (60%) channels.
As a result of the COVID-19 pandemic, almost a quarter of financial advisors (24%) reported that they saw an increase in client interest in ESG.
Unsurprisingly, generational divides were present in the study findings, with 69% of advisors under the age of 35 using ESG mutual funds and ETFs today—a number expected to jump to 83% in two years.
Meanwhile, just over half (56%) of advisors over the age of 55 use ESG mutual funds and ETFs today.
Older advisors appear to recognize the appeal and demand for ESG products, as 74% of that group expects to use ESG mutual funds or ETFs in two years.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
