Advancing environmental, social, and governance investing

Article

Advancing environmental, social, and governance investing

A holistic approach for investment management firms

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.

Executive Summary

Despite greater adoption within the investment community, the varying approaches to ESG incorporation by investment management firms, regulators, and investors suggest the full potential has yet to be realized. This will likely happen if investment managers routinely consider ESG metrics in all investment decisions. While this scenario seems unlikely in the short term, the Deloitte Center for Financial Services (DCFS) expects client demand to drive ESG-mandated assets to make up half of all professionally managed investments in the United States by 2025. According to the DCFS, investment managers are likely to respond to this demand by potentially launching a record 200 new ESG funds by 2023, more than double the previous three years. Investment management firms may benefit from this rise because ESG funds tend toward active management, with 92 percent delivered through actively managed portfolios.

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Performance magazine issue 32, May 2020

Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients.

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