Audio Transcript

ESG is a hot topic at the moment, but is it here for the long run likely to be a passing fad? Let’s look at what is driving ESG: in first place is client demand. The majority of clients would prefer ESG products and indeed more than 60% of clients, regardless of age or wealth, would consider choosing an investment firm based on its ESG offering. That’s a big number.

There is certainly a shift in the way that clients want to do good while doing well, and firms will have to take notice. ESG driven assets continue to attract interest and have now reached over $40 trillion globally. This attraction has accelerated during the pandemic. Indeed, year to date, ESG related investments have outperformed their counterparts and the numbers look even more impressive over the past five years.

So, the alpha is being realized. A minority in the market are worried that the popularity of ESG investments bear the hallmarks of a stock market bubble, filled by liquidity and flows and underpinned by subjective data, which is not standardized. Some predict this bubble will burst in the coming years.

True, there needs to be an improvement in the quality of data around ESG, but overall, I’m dubious about this point of view, but only time will tell. What I am sure about is the clients of today are expecting to see a rich ESG offering from their investment managers firms whose offerings are delivered in a way that engages the clients best will be the winners in the short term and probably for the long run too.