Advisors May Be Missing Key ESG Trends
- A recent report from Cerulli Associates revealed that financial advisors may be disconnected from their clients’ interest in ESG investing.
- ESG investing has experienced unprecedented growth in the past decade, with no sign of slowing.
- It will be essential for financial advisors and asset managers to meet their clients needs and contribute to growing the sustainable investing market even more.
Are Advisors Missing the ESG Trend?
Boston-based research, analytics, and consulting firm Cerulli Associates released a recent report on financial advisors and environmental, social, and governance (ESG) investing trends. One of the most salient points was that advisors are significantly underestimating the interests of their clients. 72% of surveyed firms labeled lack of customer demand as a moderate or strong influence for not expanding their ESG offerings. Across the board, it appears that ESG investing is not viewed as a priority point for future development. Additionally, for those “few” investors that are interested in ESG investing, most advisors in the survey expected such desires to come from high net worth (HNW) investors. To provide statistics to this claim, 66% of asset managers predicted high ESG demand among HNW individuals and 25% expected moderate demand.
What Do Investors Think?
Interestingly, the data on investors’ interest in ESG differs greatly from the indifference many advisors suspect. In fact, Cerulli’s research reveals that over half of households making 100-250k in assets would prefer to invest with ESG factors in mind. This survey is well complemented with data on the remarkable growth of ESG investing. From 2019 to 2020, ESG funds grew to 51.1 billion USD, more than double just 1 year before. Additionally, sustainable funds grew by 30% from 2019, with almost 400 sustainable fund options for investors. Beyond unique funds, US AuM with ESG strategies reached 17 trillion in 2020, accounting for 33% of all US AuM. With these factors in mind, it is clear that the interest in ESG investing appears to be extremely large and growing rapidly. Although HNW individuals play a piece in this story, retail investors and others are just as important when assessing the overall growth of this market.
What Next?
To expand the sustainable reporting and investing space, financial advisors and asset managers play a crucial role. Expanding sustainable fund offerings along with better developing sustainable strategies will be an essential next step. Not only do investors want to invest sustainably, but they want to see the tangible impact they are having, making reporting and tracking another great priority to center on. In the coming months, it is expected that under the Biden Administration sustainable investing will be strengthened through government support and regulation. With no sign of the field slowing down, it will be critical for advisors and asset managers to address their customers’ needs directly.
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