Will more environment, social and governance (ESG) investment offerings stem the flow from active to passive management?
It’s a possibility raised by Cerulli Associates, which found that more than half of asset managers (55%) were looking to create ESG investment solutions and, “as active asset managers fight to win assets amid increasing flows to passive products, thoughtful implementation of ESG investment principles can give active managers a valuable tool in conversations with advisors.”
Also, wealth transfer between generations will place a greater percentage of investable assets in the hands of younger investors, who view ESG investing more favorably than past generations.
In a recent Cerulli survey, 42% of sponsors said the use of ESG factors is not important to them when choosing a subadvisor, though that number has trended downward from 69% last year.
“To bolster adoption in the subadvisory channel, the first critical driver is more explicit demand from the end-clients,” the Boston-based research and consulting firm notes. “Cerulli believes that one of the most critical factors in getting a seat at the table—other than performance and demonstrated capabilities, which will likely be derived from quantitative screens by the sponsor—will be the value-add services that subadvisors provide their sponsors.”
Facing headwinds
Cerulli had previously found that fee sensitivity, the (mistaken?) notion that ESG investing entails a trade-off in performance, and the regulatory environment in the 401k and DC market present barriers to adoption for ESG in retirement plans specifically.
While survey data showed that plan participants and plan sponsors are generally supportive of ESG-oriented investments in concept, ESG-oriented investment options still face “headwinds.”
“Data shows that plan sponsors care about ESG factors, but they place a greater emphasis on performance and price,” Dan Cook, a research analyst in the retirement practice at Cerulli, said in a statement at the time.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and 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. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
