Number of Actively Managed Funds Seeking ESG Skyrocketed in 2019

The number of actively managed funds adding environmental, social and governance (ESG) criteria skyrocketed in 2019. ESG was already on the rise with a number of firms offering ESG-related products or screeners to their strategies, but this only confirms the explosive growth space is experiencing.

“The explosive growth of funds considering ESG reflects the now widespread recognition among asset managers of the materiality of ESG factors in evaluating investments, the greater capacity of asset managers to evaluate ESG factors through increased analytical resources and personnel, and, no doubt, a desire on the part of asset managers to signal their ESG awareness to end investors,” wrote Jon Hale in Morningstar.

Overall, Hale views this as a positive for the financial markets and gives investors a wide range of considerations for their ESG needs.

“Having more funds recognize the relevance of ESG is a good thing for investors who, after all, are paying their fund managers to bring to bear all material, relevant information in making investment decisions,” Hae wrote. “Having more funds formally acknowledge a role for ESG in their prospectuses helps advisors and fund investors understand and identify those managers that are doing so. Investors for whom ESG consideration might be a factor in fund selection have an expanding universe from which to choose.”

Furthermore, the coronavirus outbreak isn’t going to stop ESG in its tracks. Even before the capital markets were tipped upside down, ESG was already a force and continues to be as Barclays Research announced that its incorporating ESG as part of its fundamental research tools.

“Prior to the outbreak of Covid-19, finance was already at a tipping point, where the integration of sustainability concerns was becoming the norm,” said Jeff Meli, Global Head of Research. “Today’s launch of Barclays’ Fundamental ESG Research is an opportunity to reflect on whether Covid-19 will accelerate this trend even further – creating a greater sense of urgency and responsibility toward everything from consumer behavior to climate change, supply-chain practices and the future of work and mobility – and potentially alter the nature of the investment process as a result.”

DWS has partnered with MSCI Inc. to launch a number of ESG-themed ETF strategies to help investors find a more readily accessible means to tap into this investment methodology. For example, the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG) has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high environmental, social and governance (ESG) performance relative to their sector peers.

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