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Sustainable and ESG funds are set to take a greater share of client portfolios over the next year, according to research* commissioned by Rathbones, one of the UK’s leading wealth and asset management groups. Almost nine in 10 (87%) of IFAs, discretionary fund managers (DFMs) and private wealth fund selectors surveyed are anticipating this increase. Of those expecting allocations to rise, 61% anticipate a slight increase, while 26% expect a significant rise.
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 political pushback against ESG in the US and continued global market volatility, appetite for sustainable investments has increased 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, while 38% report no change.
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 when selecting a sustainable or ESG fund for 94% of IFAs, DFMs and fund selectors. For 15%, active management is the primary reason for selecting a fund.
Respondents also see a role for active managers in supporting 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. Almost two thirds (64%) believe active strategies are more likely to deliver better outcomes, while almost a third (31%) strongly believe this is the case.
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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