Only eight global asset managers out of 97 have met Morningstar’s highest environment, social and governance (ESG) commitment level rating in its latest analysis.
The Morningstar ESG Commitment Level helps investors assess an asset manager’s alignment to their own sustainability preferences by providing insights into the firm’s sustainable-investing philosophies, ESG integration processes, resources and active ownership activities.
Of the 97 firms under Morningstar’s latest ESG Commitment Level coverage, 8% are rated leader, 24% scored advanced, 45% of firms received basic, and 23% earned low.
The investment research and financial services firm found that the vast majority of firms have improved their practices, which has raised the bar for the industry overall as well as for the ESG Commitment Level evaluations.
Some firms have bolstered their efforts faster or to a greater extent than others and relative to where they were when Morningstar started assessing them a few years ago.
Out of the 12 asset managers highlighted in its accompanying report, five were upgraded, from advanced to basic. These included Comgest, Fidelity International and Pictet. Meanwhile, Janus Henderson and Man Group both went to basic from low. Morningstar initiated coverage of Nordea at advanced.
Since its previous reviews, Morningstar found Comgest and Fidelity International have invested “significantly” in personnel dedicated to sustainable-investing initiatives. Comgest’s team has nearly doubled in the past two years, and Fidelity International’s team has quadrupled since 2019.
“With this growth has come sensible structure, too,” the report said. Both firms have strengthened functional responsibilities such as company research, corporate engagement, and client service across different sub-teams, and both also enjoy direct lines of communication with executive leaders.
Comgest and Pictet have both made “great strides” in their active ownership programs in recent years, the report said.
Overall, it has been a bumpy time for the industry with a separate report from Morningstar revealing that global sustainable funds experienced net outflows for the first time in the fourth quarter of 2023.
Investors withdrew $2.5 billion, while the broader market of open-end funds and exchange-traded funds (ETFs) also suffered redemptions against a continuously challenging macroeconomic and geopolitical backdrop.
In Europe, sustainable funds held up better than the broader market and garnered $3.3 billion of net new money in the fourth quarter, thanks to passive funds, which collected $21.3 billion. Actively managed sustainable funds, however, lost close to $8 billion.
Over the full year, European sustainable funds collected $76 billion. By contrast, their conventional peers suffered annual outflows of $50 billion.
Europe continued to account for the lion’s share of the sustainable fund landscape with 84% of global sustainable fund assets.
The region also remains by far the most developed and diverse ESG market, followed by
the US, which housed 11% of global sustainable fund assets at the end of December 2023.
Asia ex-Japan, of which China is the biggest sustainable market with more than 63% of the region’s asset base—is down from 71% one year earlier due to the country’s disappointing economic recovery—ranks third in terms of sustainable fund market size.
However, the US is facing an ESG backlash which explains why investors pulled a record $5 billion from domestic sustainable funds in the last quarter, culminating in a total $13 billion over 2023.
Global sustainable fund assets though rose by 8% over the last quarter to almost $3 trillion at the end of December, on the back of stock and bond price appreciation,
In addition, product development accelerated with over 120 new sustainable funds coming to the global market in the fourth quarter.
As for asset managers, Morningstar found that BlackRock, the world’s largest manager, is by far the leader in the sustainable investing space, with $318 billion of assets in ESG-focused open-ended assets and ETFs, at the end of 2023.
It is followed by UBS, which with the acquisition of Credit Suisse last year pushed it to the second position, neck and neck with Amundi, the largest European manager.
“The global ESG fund flow picture in the last quarter may look bleak, but ESG funds in Europe – by far the largest market – continued to hold up better than the rest of the fund universe,” said Hortense Bioy, global director of sustainability research, Morningstar.
She added, “Global ESG fund assets kept rising too. The disappointing reality is that active managers failed again to prevent redemptions in a corner of the market where it’s easier for them to prove their worth. By contrast, passive funds demonstrated consistent resilience.”
© Markets Media Europe 2024
