Environmental, social, and governance, or ESG, investing is becoming more widespread as investors begin to adopt the thematic approach to diversify their core investment portfolios.
Luke Oliver, Head of Index investing for the Americas at DWS Group, argued that the ESG has “established itself this year” as a mainstream way for investors to capture gains while reflecting certain moral values, CNBC reports.
“Over $19 billion has flowed into ESG ETFs this year, bringing the total to over $40 billion,” Oliver told CNBC. “Just to put that in some context, there was less than $8 billion in inflow last year and prior to that the flows were very scant.”
That $19 billion tally was a record inflow for ESG-specific ETFs, which have enjoyed “persistent” inflows in 2020 despite the coronavirus-driven downturn earlier in the year.
“Investors are adopting this … less so as a satellite, very specific position, but as something that they’ll put at the heart of their portfolio,” Oliver said.
“It speaks to this being very much not a conflict of fiduciary duty,” he added, referencing the Department of Labor’s recent scrutiny on ESG funds for sacrificing performance in favor of social or political values.
Oliver believed that there is potential for outperformance in strategies that focus on ESG issues since these types of companies are seen as better prepared to meet the challenges of a changing regulatory environment that tries to address global issues.
“You can’t put on the TV without seeing environmental issues, wildfires. We’re seeing social issues across this country and in others. And we’ve also had recently some big headlines around firms that have run into trouble with corruption or fraud,” Oliver said. “These are the topics that people are seeing … and with the growth of ESG, they are now able to express those when investing in the market.”
Steve Grasso, director of institutional sales at Stuart Frankel, also pointed out that big money managers are making a concerted effort to push into ESG issues, highlighting the growing momentum behind the investment theme.
“If you look back onto BlackRock’s Larry Fink, this has been one of his initiatives and he has said that the top issue for investors has been sustainability. They have [$]7 trillion in assets, so, if someone like a BlackRock starts to dictate the direction of the overall market, the rest of the market will follow where he is leaning,” Grasso told CNBC.
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