Funds focused on investing in firms with strong ESG (environmental, social and governance) profiles bounced back from the coronavirus-driven market sell-off in a big way this year. According to research from Morningstar’s Global Sustainable Fund Flows report, ESG funds hit a global record high of more than US$1 trillion AUM as of the end of June, with global inflows into sustainable funds during the second quarter of 2020 up 72% quarter over quarter. “The disruption caused by the pandemic has highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations,” the report stated.
Institutional investors—and increasingly retail investors—continue to allocate more money to sustainable investing for a number of reasons.
- They want to do good, and do well: ESG funds can help investors align their values with their investments; for example, avoiding certain energy sectors or supporting firms with diverse boards—without sacrificing performance. In fact, the Morningstar report stated that during the first quarter of 2020, “Seven out of 10 sustainable equity funds finished in the top halves of their Morningstar categories, and 24 of 26 environmental, social, and governance-tilted index funds outperformed their closest conventional counterparts.”
- They want to mitigate risk: Investing in companies that actively engage in good governance, social and environmental strategies can help avoid and manage 21st-century risks smartly. With climate change, racial justice demonstrations and other ESG challenges on the docket, an investor can use sustainable investing to avoid unnecessary exposure to risks that may end up doing serious damage to their portfolios.
- They want to diversify: ESG factors can have a positive impact on a company’s competitive positioning in the global economy. International companies that take care to manage their social and environmental impact are more likely to meet the regulations in the countries in which they operate, and those firms working to improve the world’s environment and society may present investors with attractive new opportunities.
With the growth in sustainable investing, investors need robust and reliable analysis to ensure that firms’ ESG claims are valid and not “greenwashing.” Investors need transparency and insight to assess companies on the sustainability scale and to be confident in their ESG investment decisions.
Act Analytics is now helping SS&C make this type of analysis available to its customers.
Act Analytics rates investments referencing more than 200 granular and transparent investment insights and according to the sustainability criteria that are relevant to each individual investor. “Sustainability” is a loaded term that has different meanings to different people. For example, one investor might want to target low-carbon companies in their investment portfolio while another might be looking to invest in companies that are more diverse and inclusive. Asking an investor to first input their personal definition of sustainability establishes a set of target ESG criteria by which to rate companies and funds that align with—or diverge from—the investor’s desires, resulting in insights and recommendations that adhere to the values of the investor.
SS&C’s Global Wealth Platform (GWP) customers may now choose to add on this powerful data service. With GWP and Act Analytics, advisors are enabled to conduct real values-based conversations with their clients and show where their investment dollars can be deployed to drive the most meaningful environmental and social change. Contact us to find out more.
Asset Management, Wealth Management