As we look to a new year, socially responsible investments that track factors like environmental, social, and governance principles could see greater adoption among financial advisors and investors.
“Interest has gone up tremendously in 2020,” Jeffrey Gitterman, head of Gitterman Wealth Management, an RIA that specializes in sustainable investing and provides model portfolios to other wealth management firms, told Think Advisor. “Our climate strategies are the most popular. The transition (to zero emissions) is here and not going away.”
Gitterman highlighted the supportive factors like Aladdin Climate, a new feature of BlackRock’s Aladdin portfolio management software that helps advisors quantify climate risk and low-carbon opportunities in portfolios, along with Moody’s data on physical climate change risks and MSCI’s climate change scenario analysis, provided by Carbon Delta, which it acquired in late 2019. These new data points and features will help financial advisors and investors become more knowledgeable about ESG factors and socially responsible investments, instead of throwing a dart in the dark.
“The great repricing is coming,” Gitterman added. “All data companies and reinsurers are looking at risk not yet priced into the market.”
Interest in sustainable investments has been ticking higher. According to US SIF, the Forum for Sustainable and Responsible Investment that U.S.-domiciled assets under management using sustainable investing strategies surged to $17.1 trillion at the start of 2020 from $12 trillion at the start of 2018, an increase of 42%.
BlackRock’s first sustainable investing survey of several hundred institutional clients in 27 countries with $25 trillion in AUM released in early December revealed that half of the participants want to double their exposure to sustainable assets within five years, reflecting “a tectonic shift in capital towards sustainable assets.”
According to Morningstar data, a record $31 billion was funneled into ESG funds while almost 400 ESG-specific funds were launched. Including ETFs and open-end funds through the third quarter.
Act On Demand
“Demand has gotten to the point where most investors could use ‘40 Act funds to construct a broadly diversified allocated portfolio of sustainable funds,” Jon Hale, Morningstar’s global head of sustainability research, told Think Advisor.
Supporting this new trend, more investors have looked at how sustainable investments can enhance a portfolio instead of doing right through investments.
“It used to be about how much investors were willing to give up to achieve sustainability objectives,” Jean Boivin, head of the BlackRock Investment Institute, told Think Advisor. “Now it’s not about the tradeoff but about sustainability as a driver of returns, which will play out over the years.”
Taking ESG factors into account “leads to better investment outcomes, “ Jody Jonsson, portfolio manager at Capital Group, told Think Advisors.
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