Friday 11th March 2022
Non-ESG funds continue to dominate flows
Calastone’s latest Global Fund Flow Index, which tracks more than 500,000 buy and sell orders every month across platforms and managed funds, recently highlighted the challenge facing ESG-focused strategies.
Despite seeing record inflows into ESG-focused funds in 2021, quadrupling the levels of 2021 to $3.0 billion, the data highlights that this remains only a small amount of the total capital flowing into the market. It is also well behind other global peer markets, including the UK.
As savings and investment surged in 2021, ESG funds gained just $2 in every $10 of capital invested, with fixed-income strategies interestingly the most popular, with $4 in $10 going into ESG-focused bond funds.
Despite the likes of Australian Ethical and Perennial gaining significant traction in the sector, the mainstream appears comfortable continuing to push into the same old funds. In the UK, some $8 in $10 is invested into ESG strategies, with European legislation and greater consumer pressure likely key factors in the trend.
Commenting on the trends, Teresa Walker of Calastone said: “Inflows to ESG funds have grown exponentially, following trends we are seeing elsewhere in the world and we expect this to continue in 2022 as economies reopen. In some markets, ESG equity funds are taking new-capital market share from traditionally managed funds, a trend that may begin to feature in Australia’s fund market. Nevertheless, the value of ESG funds under management is still dwarfed by traditional categories, so there is a lot of headroom to grow further, which is good news for active fund managers.”
One of the key issues with the data may well be the growing trend of non-ESG managers “integrating” ESG into their processes, to the point that investors believe they are investing in these strategies, but this may not be true to label.
Given the groundswell of concern for social and governance factors, particularly in light of growing inequality and the events in Ukraine, there remains a great opportunity for ESG-focused managed funds to benefit from this trend, particularly as we catch up with the Northern Hemisphere and as legislation changes.
