An increasing number of asset managers are adopting sustainable investment strategies, potentially supporting the outlook for socially responsible exchange traded funds that track categories like environmental, social and governance principles.
According to a recent survey, Sustainable Signals: Growth and Opportunity in Asset Management, from the Morgan Stanley Institute for Sustainable Investing and Bloomberg, a majority of U.S. asset managers are now practicing sustainable investing and view it as a strategic business imperative. Specifically, 75% of respondents revealed that their firms have adopted sustainable investing, compared to 65% in 2016.
“The survey results demonstrate that sustainable investment strategies are now a strategic imperative,” Matthew Slovik, Head of Global Sustainable Finance at Morgan Stanley, said in a note. “It is clear that asset managers will continue to invest new resources and expand their product portfolios in the coming years.”
Survey respondents pointed to several key drivers of success in sustainable investing, such as increased investment stability, high client satisfaction, product popularity and possible high financial returns.
ESG Growth Prospects
Nevertheless, there is still a lot of further work that needs to be done before increased adoption. Almost all surveyed asset managers highlighted the need for increased expertise, better data and impact reporting to drive future progress in this category.
“As investors increasingly consider sustainability factors across asset classes and investment products, we expect to see a shift toward better data tracking and reporting mechanisms,” Curtis Ravenel, Global Head of Sustainable Business & Finance at Bloomberg, said in a note. “This will increase credibility and improve measurement of impact across portfolios.”
The survey also revealed U.S. asset managers agree that sustainable investing is no longer viewed as a fad, with 89% of respondents arguing that it is here to stay and 63% anticipating continued growth in the next five years.
Many previously believed it was a fad with no real investment backing, but more academic studies and historical evidence show that there is a financial case for sustainable investing. Around 82% think strong ESG practices can lead to higher profitability and that companies with such practices may be better long-term investments. Additionally, 62% participants believe that it’s possible to maximize financial returns while investing sustainably.
Looking ahead, 89% of respondents said they will devote more resources to sustainable investing over the next two years.
For more information on sustainable investments, visit our socially responsible ETFs category.