Sean Collins is a manager at the Deloitte Center for Financial Services, and Kristen Sullivan is an Audit and Assurance partner at Deloitte & Touche LLP. This post is based on their Deloitte publication. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Robert H. Sitkoff (discussed on the Forum here).
Key Messages
- ESG-mandated assets in the United States could grow almost three times as fast as non-ESG-mandated assets to comprise half of all professionally managed investments by 2025.
- An estimated 200 new funds in the United States with an ESG investment mandate are expected to launch over the next three years, more than doubling the activity from the previous three years.
- The use of artificial intelligence (AI) and alternative data is giving investment managers greater capabilities to uncover material ESG data and possibly achieve alpha.
- Investment management firms that act today to transition from siloed ESG product offerings toward enterprise-level implementation will likely capture a greater percentage of future ESG asset flows.
The sustainability movement is growing
Social consciousness has spread throughout many facets of life, and many companies are making a concerted effort to align with these principles. This effort has likely contributed to the steady rise in the media coverage afforded to “sustainable” brands over the past two years. Evidence suggests a similar growth in a desire for what are characterized as “sustainable” or “socially responsible” investments. Globally, the percentage of both retail and institutional investors that apply environmental, social, and governance (ESG) principles to at least a quarter of their portfolios jumped from 48 percent in 2017 to 75 percent in 2019. While directing investments based on one’s values has been around for decades, discussions between advisors and their clients about ESG investing have become commonplace.