Global investors report a lack of innovation in ESG products and services, according to Capital Group’s ESG Global Study.
The asset manager surveyed 1,130 institutional and wholesale investors, including pension funds, family offices and insurance companies, as well as funds of funds, retail/private banks and financial advisors, located in 19 markets around the world in 2022.
This is the second instalment of the 2022 global study, which seeks to identify key drivers and challenges facing ESG investing.
The study highlights a gap between investor demand and the availability of funds that provide exposure to multiple themes.
It showed that nearly four in 10 of global investors think a lack of product innovation is holding back greater adoption of ESG while almost half or 46% think there are not enough funds aligned to the United Nations Sustainable Development Goals (SDGs).
It also found 47%)also report that existing funds that target the SDGs overly focus on environmental issues and 43% say there is a specific need for multi-thematic ESG funds.
“Investors looking to access a broad range of ESG themes must currently buy several single-thematic or narrowly focused funds, underscoring the need for all-in-one solutions that allow investors to target sustainability through the widest lens,” said Jessica Ground, global head of ESG, Capital Group.
She added, “The demand for more innovative ESG funds may reflect a desire to diversify their holdings as investors recognise they need all-weather solutions that can adapt to changing market conditions and better withstand volatility.
Furthermore, the study highlights a growing acceptance within the investment community that the transition towards a sustainable future cannot be achieved solely by backing companies that are already leaders at the expense of transitioning companies.”
The study noted that there is growing acceptance among the investors polled that a sustainable future cannot be achieved solely by supporting companies considered to be the ESG leaders.
Four in 10 investors or 40% currently favour investing in a combination of companies that are ESG leaders and ESG transitioners, while 34% believe that asset managers investing solely with ESG leaders at the expense of transitioners are doing more harm than good.
The proportion of investors expecting to focus on ESG transitioners either mainly or exclusively is expected to jump from 21% today to 30% over the next two to three years.
The survey revealed that investors in Europe are set to have the highest focus on transitioners going forward, with European investors reporting they plan to increase allocations from 20% today to 34% during that time frame.
“Our study finds investors want to support a broad range of ESG themes through their investment actions,” said Ground. “We can see a more sophisticated and holistic approach to ESG developing, as investors evolve away from negative screening and divestment.”
She added, “In particular, ESG investors seek actively managed, diversified and dynamic solutions providing exposure to multiple themes and a variety of transitioning companies.
ESG investors have a strong bias toward active strategies with nearly two-thirds or 63% of global investors saying their preferred approach when integrating ESG is to use active funds. This demonstrates how investors think active managers are uniquely placed to capitalise on and manage ESG opportunities and risks.”
