The Big Picture


THE BIG PICTURE: INSTITUTIONAL INVESTORS SHOW SOLID SUPPORT FOR ESG 50


Quarterly Net Institutional Flows (US$MM) 0


-50


-100


-150


-200


-250


Q2 16 Q3 16 Q4 16 Q1 17 All ESG/SRI Strategies


Q2 17


Q3 17


Q4 17


Q1 18 Sustainability-themed/Impact Investing


Q2 18


Q3 18


Q4 18 All ESG/SRI Equity


Q1 19 All Equity


Q2 19


Q3 19


Q4 19


Q1 20


Q2 20


Q3 20


Q4 20


Q1 21 Source: eVestment


The numbers reveal the extent of institutional investor bullish- ness on ESG, finds Andrew Holt.


Institutional investor demand for environmental, social and corporate governance (ESG) strategies is robust, portfolio insti- tutional can reveal.


This is brought into sharper focus when compared to non-ESG strategies. “Net positive institutional flows are already a good sign of demand, but it is made more poignant by flows for their non-ESG counterparts being negative over the same period,” says Mike Cho, senior research analyst at eVestment. For instance, ESG global equity managers have attracted $55bn (£39bn) in net new capital during the three years to the first quarter of 2021 versus $226bn (£187.6bn) of net redemptions for all global equity managers.


This is backed by the level of institutional investors imple- menting ESG approaches rising by 18% in the past two years. This is not only driven by a commitment to the different facets of the E, S and G, but also by increasing regulatory pressure. And this is a trend that is likely to increase – and rapidly. According to one estimate, global ESG assets are on track to exceed $53trn (£37trn) by 2025, representing more than a third of the $140.5trn (£99.1trn) in projected total assets under management. And while Europe accounts for half of global ESG assets, the


expansion is more evident in the US. Yet interestingly, the next wave of growth is expected to come from Asia – Japan in particular.


Another picture shows that institutional flows have been sig- nificantly stronger for growth equity managers with multi- region mandates – ACWI ex-US, Europe, Australasia and the Middle East as well as global and emerging markets – com- pared to their value counterparts during the past five years. However, that has not been the case for US, UK or pan-Europe equity strategies. “Generally, when we see one factor outper- form another so starkly, as growth stocks have against value during the past few years, we see a rebalancing effect such that the outperforming asset sees larger outflows than the under- performing one,” Cho says.


Clearly this effect has yet to materialise for growth equity strat- egies with broad geographic remits. Therefore, assuming for the moment that the majority of region-specific equity flows are due to domestic investors, or that the ‘natural buyers’ of region-specific equities reside in the same region, then the growth/value dynamics playing out in multi-region equities versus region-specific equities, “may,” Cho says, “point to the possibility that institutions believe they are underexposed to foreign growth equities.” This presents another dimension to the global versus value debate, and the associated great rotation that goes with it.


Issue 104 | June 2021 | portfolio institutional | 9


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