Climate change news stories are increasingly impacting investor decisions, while financial advisers continue their gradual but inexorable advance in the adoption of ESG investing in the UK. An avalanche of fund launches, marketing initiatives and PR campaigns by asset managers shows no signs of abating. However, our analysis of fund flows shows that the tide is not lifting all boats – far from it. A rethink of asset managers’ strategies is needed.
The overflow of ESG information has generated confusion and resistance among both advisers and end investors. Regulators are getting serious about ESG-related disclosures. And, after two exceptional years, ESG funds will likely face performance headwinds in 2022. For asset managers this is a good time to leave behind their gold rush mindset and focus on the long game.
Short-term gains from unprecedented interest in ESG triggered by the pandemic have mainly favoured a handful of firms. But now we’re entering a new phase where fund providers can focus on two long-term trends with seismic consequences: generational wealth transfer and the burgeoning demand for transparency about environmental and social outcomes. Those asset managers who really understand the implications of these trends will own the future.