ESG funds have taken a wobble, look beyond the headlines

YOU may view ESG (environmental, social and governance) investing, with some pessimism these days. In May alone, investors pulled out more than £300m from ESG funds¹.  

Investors have also faced a barrage of volatility in the last six months - rising interest rates, sticky inflation, geopolitical tension, and even banking turmoil. It may have spooked some investors, but worry not, global asset managers still have confidence in ESG. 

A good way to gauge the long-term prospects of sustainable investing is to see how global asset managers are approaching the area. They’re collectively responsible for managing trillions in assets - so their power in the investing world can’t be ignored.  

According to the Index Industry Association’s ESG Global Asset Manager Survey², 81% of portfolio managers from the UK, US, Germany and France, found that ESG in investments became more or much more of a priority in the past 12 months. Within two or three years, they expect it to account for half of portfolios. 

Asset managers don’t just think about the now, they look forward - not just five years, but decades ahead. Recent data shows that global asset managers’ confidence in ESG remains high, despite the ongoing volatility.  

Fund managers are also looking beyond traditional issues like climate change and carbon emissions. The survey found that 42% of managers were focusing on natural resource usage or depletion, 39% on sustainable supply chains and 38% on resilience of physical assets to climate change as investing strategy priorities.  

Social factors are also on the radar, with 62% of managers incorporating societal factors in all or most portfolios.  

And this isn’t just a short-term trend. 

A report from PwC last October found that asset managers were expected to increase ESG-related assets under management to $33.9tn by 2026, from $18.4tn in 2021 - an increase of 84%³. 

So, what does this mean for you? 

Well, ESG certainly presents long-term investment opportunities. It’s a matter of deciding what you want to invest in.  

Our Sustainable Investment Finder allows you to filter an entire catalogue of sustainable investments by seven different categories.  

It comes with new advanced filters - which allow you to either include, exclude, or avoid issues, industries and areas of interest. For example, you can filter for funds that include a climate change/greenhouse gas emissions policy. You can also look at funds that avoid coal, oil and/or gas companies. 

It’s important to note that sustainable investing isn’t just about picking assets that align with your values, as an investor you also don’t want to compromise on financial returns. 

Whether you’re investing for income, capital, or both, you can view the performance of a fund across three, five or ten years (if applicable). Remember the value of an investment may go down as well as up, so do some thorough research before you invest. For example, look at the fund’s portfolio, top 10 holdings, ongoing charges, and dividend payment frequency.  

If you’re still unsure of what you want to invest in, you may want to consider personal financial advice to discuss your options.

Sources

¹ City AM, 30 June 2023  

² Pensions and Investment online, 27 June 2023  

³ Financial Times, 23 June 2023

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. An Investment Manager's focus on securities of companies which maintain strong environmental, social and governance ("ESG") credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security's ESG credentials can change over time. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.