"Our new Market Insights shows that the ESG market has quite possibly reached a turning point in 2020. New regulatory measures, such as the Sustainable Finance Disclosure Regulation that came into force yesterday, intend to enhance comparability and trust for investors in ESG funds ...."
The European Fund and Asset Management
Association (EFAMA) has published its latest Market
Insights report titled “ESG Investing in the UCITS
Market – A powerful and inexorable trend”. The
report looks at the major
trends in the ESG UCITS market,the impact of the
coronavirus pandemic, and the behaviour of ESG and non-ESG
funds.
Tanguy van de Werve,
EFAMA Director General commented: “Our new Market
Insights shows that the ESG
market has quite possibly reached a turning point in 2020.
New regulatory measures, such as the Sustainable Finance
Disclosure Regulation that came into force yesterday,
intend to enhance comparability and trust for investors in
ESG funds, as well as hold market participants accountable
and avoid greenwashing. Promoting confidence in this market
can increase participation, especially from retail
investors, thereby further accelerating the trend we
observe. It is crucial that the investment management
industry continues to engage with policymakers to ensure
the development and implementation of regulations and
standards that enable market participants to fully
contribute to the ESG agenda”.
The
full report, available 
here,
includes the following highlights: ESG
funds - The number of ESG funds
grew at more than double the rate of non-ESG funds during
the past five years, with a significant acceleration since
2017. Equity and bond ESG fund assets increased by 197% and
181%, respectively, in this period. This growth reflects
both the creation of new funds and the integration of ESG
criteria into the investment process of existing funds.
Net
assets and net sales -
ESG funds saw their assets increasing by 37.1% in 2020 to reach
EUR 1.2 trillion at end-December. Net sales of ESG funds grew
from EUR 19.5 billion in 2016 to EUR 235 billion in 2020.
Passive
vs. active funds - Passive funds represent
20% of net assets held in the total ESG fund universe,
while 80% of assets are actively managed. Reflecting a
similar balance, 17% of funds in the non-ESG fund universe
are passively managed and 83% are actively managed funds.
ETFs account for 8% of the total ESG fund universe,
compared to 9.2% in non-ESG.
Asset
classes - Equity funds dominate
the ESG space, representing 56% of the fund universe at the
end of December 2020 compared to 39% within non-ESG funds.
E,
S or G? - Environmental
funds dominate the impact fund category, with funds
focusing on low carbon emissions being the most dominant
category (55%) and renewable energy funds exhibiting the
highest growth (604%) since 2016. During the same period, social
funds experienced substantial growth in demand (340%), highlighting
the growing popularity of social topics in sustainable
investing.
Performance - The performance of ESG
and non-ESG funds has been broadly similar since 2016, the
exception being 2020 when ESG equity and bond funds
recorded a higher average gross performance. This finding
confirms that, on average, investors do not have to
sacrifice long-term returns to support the transition to a
more sustainable economy. Equally important, the report
shows that the differences between the performance of the
top and bottom ESG and non-ESG funds are quite large,
reflecting the fact that the universe of funds is made up
of many different funds in terms of investment strategy.
Cost
- ESG funds, on average, tend to be slightly cheaper than non-ESG
funds. This situation can be explained by the fact that many ESG funds
have been launched recently in the context of stiff competition among
fund managers, who also have a strong incentive to limit ongoing charges
to attract investors. The report also highlights a downward trend in
the cost of both ESG and non-ESG funds.
Vera Jotanovic, senior
economist at EFAMA, commented: “The
ESG funds universe has been growing rapidly snce 2016, in
parallel with the awareness of the importance of the sustainability
agenda. The development of ESG funds has become a priority for
many in the industry and their resilience during last
year’s Covid-induced market stress has contributed to further
accelerating the growth trend.”
EFAMA
© EFAMA - European Fund and Asset Management Association
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