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Demand for sustainable and ESG-based funds remains resilient, with IFAs, discretionary fund managers (DFMs) and private wealth fund selectors expecting allocations within client portfolios to increase over the next year, according to a study* from Rathbones Asset Management.
The research also shows that sustainable and ESG-integrated funds are already embedded in many standard model portfolios, with four in five holding between 11% and 25%. However, relatively few (3%) have allocations above this level, suggesting there is still scope for further growth.
Despite the backlash against ESG investment in the United States and the general volatility within global markets, there has been an increase in the appetite for sustainable investments over the past 12 months. More than half (54%) of respondents have experienced a slight increase, while 5% say the increase has been significant. Just 3% have seen a decline in appetite for sustainable investments while 38% report no change.
Almost nine in 10 (87%) respondents say that they expect allocations to sustainable investments to increase further over the next 12 months. Almost two thirds (61%) say they think this increase will be slight, but more than a quarter (26%) believe there will be a significant rise in allocations.
David Harrison, Head of Sustainability, Rathbones Asset Management, said: “The findings suggest fund selectors are looking through the short-term noise around ESG and continuing to focus on the long-term role sustainable investments can play in client portfolios. While market conditions and political debate have made the backdrop more complex, demand is still being supported by clients’ desire for credible, well-managed strategies with clear processes and demonstrable stewardship.”
Active stewardship, including voting and engagement, is an important factor in selecting a sustainable or ESG fund for 94% of IFAs, DFMs and allocators. For 15%, an active strategy is the primary reason funds have been selected.
Respondents also believe active managers are better placed than passive vehicles to support real-world outcomes, such as lower carbon emissions, improved health and reduced resource use. Almost all (95%) say active strategies can play an important role, with almost two thirds (64%) saying active strategies are more likely to deliver better outcomes and almost a third (31%) convinced of the correlation.
Harrison added: “For many fund selectors, active stewardship is becoming a key test of credibility. Voting and engagement give managers a way to demonstrate how they are using their influence on behalf of clients, rather than simply offering exposure to a sustainable theme. In a more scrutinised market, that distinction matters.”
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