| Mixed messages on ESG front It has been a summer of heatwaves – for some of us – with July 2024 1.48°C warmer than is typical for the month, of which about 1.3°C is attributable to the general trend of global warming over the intervening decades.
Climate change continues to dominate the headlines, particularly during the many elections held this year.
But this week we bring you news from Bloomberg Intelligence (BI) that there has been a 70 per cent slide in ESG assets under management (AUM) growth during the first half of 2024
However rather than viewing this as a sign of diminishing interest from investors, Bloomberg argues that the ESG market is maturing, and rather than abandoning responsible investment, investors are pulling back from the rush to sustainability which was evident between 2016 and 2020.
This latter period, the research claims, was marked by "pervasive greenwashing" whereas today’s more discerning investor is taking time to assess the authenticity of ESG products.
Adeline Diab, BI Director of Research & Chief ESG Strategist, says: "Cutting through the polarisation engendered by elections, we expect the market to mature and gain credibility, crossing USD40 trillion by 2030, with more harmonised regulations and investor scrutiny on sustainability claims."
Yet the slide in ESG AUM follows earlier reports in June that investors have withdrawn a net USD40 billion from such equity funds this year, according to research from Barclays.
Redemptions, which include a record monthly net outflow of about USD14 billion in April, were widespread across all main regions, and reflected a general anti-ESG rhetoric in the US, a series of greenwashing scandals and lacklustre performance.
Even in Europe, which BI notes has a 45 per cent share of ESG assets making it the largest market, equity fund outflows amounted to USD1.9 billion in April.
The role of private capital is essential to ensuring the world reaches its green transition targets. At this June’s Bonn Climate Change Conference, delegates agreed that trillions – rather than billions - of dollars are needed to end global reliance on fossil fuels; sums that can only be reached with the support from investors.
It will be incumbent on the countries attending COP29 Climate Summit in Azerbaijan this November to come up with innovative new ways to capture private investors’ attention and deliver reassurance that ESG strategies remain relevant.
In other news, an international study by Bovill Newgate and Ocorian, reveals just under two thirds (65 per cent) of alternative asset managers have been subject to governance related fines or sanctions in the last two years. A further 12 per cent have received an information request or visit from the regulator in the last two years.
This is despite respondents to the same survey claiming they take governance seriously, with more than half (45 per cent) claiming it is incredibly important.
It may be that respondents are merely playing lip service to their obligations, but Paul Ford, Head of Regulatory and Governance, at Bovill Newgate, says it is more likely that they are simply falling victim to a fastmoving and complex regulatory system.
Whatever the reasons, the high levels of regulatory intervention suggest alternative managers may need a new approach to keeping their houses in order.
Listen here for our most recent Off the Record Podcast with John Ciampaglia of Sprott Asset Management discussing the metals of the future – uranium and copper.
Gill Wadsworth, Editor, Institutional Asset Manager
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