Traditional Investment Managers View ESG as a Differentiator
Traditional investment managers (IMs) are increasingly promoting their ESG credentials to investors to differentiate themselves from competitors, Fitch Ratings says in a new report following a review of the sector.
Disclosure requirements for sustainable products are one of the main regulatory themes facing the industry. The EU implemented its Sustainable Finance Disclosure Regulation in 2021 to make funds more transparent and easier to assess in terms of sustainability. Regulators in other regions are taking similar initiatives.
Sustainability disclosure requirements create an opportunity for traditional IMs to differentiate their offerings and potentially gain market share as investor demand for sustainable products increases. Most of the demand has been from institutional investors, but there are signs that ESG momentum is gaining traction with retail investors, too. Sustainable fund net inflows accelerated in 2020–2021, and although the pace slowed in 1Q22, it did not slow by as much as that of conventional funds.
Traditional IMs have been cautious about marketing products as sustainable to avoid claims of ‘greenwashing’, particularly as definitions of ‘sustainable’ are still being harmonised. Regulators are increasingly acting to deter and penalise greenwashing.
In May 2022, the SEC charged the fund-management arm of BNY Mellon for misstatements and omissions about ESG considerations in making investment decisions, which led to a USD1.5 million penalty. The SEC, along with BaFin, is also investigating Germany’s DWS Group over greenwashing claims.
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Notwithstanding the risks of greenwashing, we expect sustainable product offerings to become increasingly important as a competitive necessity, particularly as sustainability definitions become more harmonised.
Fitch’s sector review also concluded that rated traditional IMs’ are well-placed to withstand near-term market challenges given their robust financial profiles and well-established franchises, but that net inflows and net asset value-based fees could remain under pressure.
Source: Fitch Ratings