ESG, active management can be an ideal combination


The outlook for actively managed and environmental, social and governance ETFs in 2021 is bright, but bring these two concepts together and the result could be something really compelling.

More and more investors are adopting environmental, social and governance (ESG) principles, prompting active managers to strengthen their credibility on this front.

Actively managed funds are experiencing a kind of renaissance, and with the industry looking for new frontiers conducive to this management, environmental, social and governance (ESG) investment appears to be a viable option.

“The asset management industry is consolidating, which makes sense given the rising costs associated with running an asset management company – compliance, regulation, trading, distribution, research, ESG, impact and list goes on, “writes Jesper Kirstein for IPE Magazine. “At the same time, consolidation among investors is forcing asset management counterparts to handle larger flows and deliver best-in-class services. This trend is likely to continue, and large asset managers are uniquely positioned to deliver benchmark results or improved management including the required ESG services in terms of exclusion and engagement. “

Right time to combine ESG, Active

Regulators and lawmakers are starting to step up. The European Union will set performance thresholds from 2021. Minimum guarantees will allow investors and businesses to switch to a greener economy. Portfolio managers of ESG funds in Europe will need to explain how and to what extent companies are taking sustainable steps. Data confirms that getting active with ESG pays off.

Interest in sustainable investments has increased. According to US SIF, the Forum for Sustainable and Responsible Investment, whose US-domiciled assets under management using sustainable investment strategies reached $ 17.1 trillion in early 2020, up from $ 12 trillion early 2018, an increase of 42%.

“Of course, ESG and impact investing will continue to dominate the asset management industry, and all managers need to adapt to that,” notes Kirstein. “What will shape the offers of tomorrow and how do managers position themselves? Exclusion and ESG integration are now seen as pure vanilla, and managers will have to prove how both factors contribute to performance. To do it as such is not enough; doing it well will be a competitive advantage. In fact, ESG will become another discipline of active management and an understanding of ESG will simply improve managers’ ability to identify the best issues in a portfolio.

To learn more about active strategies, visit our Active ETFs channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.

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