THE coronavirus pandemic seems to have boosted demand for sustainable investments, thus pushing global asset managers to bring more environmental, social and governance (ESG) funds quickly to the market.
Investor preference for ESG-focused funds has accelerated during the Covid-19 crisis and may be pushing an overall rebalancing towards sustainable portfolios from the more traditional type.
To be able to meet surging investor demand, asset managers are basically taking existing non-ESG fund strategies with well-established track records and re-jigging them into ESG funds. This basically means simply integrating ESG and sustainability investment principles into the existing funds.
In the past three weeks alone, three global asset managers have done this in both the fixed income and equity asset classes.
On April 22, T. Rowe Price launched a range of five sustainable SICAV strategies based on five established portfolios, namely: the Sustainable Global Focused Growth Equity Fund (the original portfolio had US$2 billion in assets under management as of April 30), Sustainable Global Growth Equity Fund (the original portfolio has US$327.7 million AUM), Sustainable US Large Cap Growth Equity Fund (the original portfolio has US$2.4 billion AUM), Sustainable Asia ex-Japan Equity Fund (the original portfolio has U$601.6 million AUM), and the Sustainable Emerging Markets Equity Fund (the original portfolio has US$2.2 billion AUM).
On April 24, BlackRock launched its global ESG unconstrained total return bond fund based on an existing US$9.4 billion strategy. This is the first global unconstrained ESG total return bond fund launched by the fixed income specialist.
On May 14, Union Bancaire Privée (UBP) launched its Positive Impact Emerging Equity fund, broadening its impact investment platform. The fund will complement the existing Positive Impact Equity strategy, which launched in September 2018, with 79.76 million euros AUM as of March 31.
While it may not necessarily be true in all cases, rejigging an existing non-ESG fund into an ESG-focused strategy is usually easier and less complicated than building an entirely new ESG-focused strategy from scratch.
For one thing, the original strategy has already been tested and has an established track record which its investors are already familiar with. Integrating the ESG component into a familiar and tested strategy makes it easier for existing investors, as well as new investors, to accept the “new” ESG-focused fund.
Bringing the new ESG-focused funds to market can also be quicker since it doesn’t take as much work when compared to building an entirely new fund from scratch and getting regulatory approval.
Increased demand for ESG and sustainable funds is evident and based on the resilience they displayed during the coronavirus pandemic market sell-off in Q1 2020.
Data from Morningstar indicates increasing investor demand for ESG assets, even during the height of the pandemic, based on inflows to global sustainable funds amounting to US$45.6 billion in Q1 2020. This compares with an outflow of US$384.7 billion for the overall fund universe during the same period.
“We believe that we are still in the early stages of a persistent and long-lasting shift toward sustainability – the full effects of which are not yet included in market prices, given the long transition. This is a transformation that we expect to see through the current pandemic, recovery, and long after,” according to a study by BlackRock entitled “Sustainable investing: resilience amid uncertainty.”