Rapid Growth in ESG Funds Calls for Adoption of Standards
NEW YORK, May 26, 2020 /PRNewswire/ -- In a just released second research article published by Sustainable Research and Analysis entitled "Sustainable Investing Growth-We've Made It!...or Have We?" Part 2 of 2, authors Michael Cosack and Henry Shilling propose three key standard setting recommendations for consideration and debate to address sector concerns and challenges that have recently arisen. These have been amplified in the light of the dramatic growth in the number as well as assets sourced to sustainable investment mutual funds and ETFs in the United States beginning in 2019. Over a five quarter period ending March 31, 2020, assets attributable to sustainable investment mutual funds and ETFs expanded by 447% to reach $2.1 trillion. In the process, this unprecedented growth is contributing to confusion and an increasingly common misunderstanding on the part of stakeholders between values-based investing, reflecting social or ethical investing considerations, and environmental, social and governance (ESG) integration, pursuant to which relevant and material risks and opportunities are taken into account in the process of evaluating securities. To ensure continued growth and development in the sector and to allow it to reach full potential, three key standard setting recommendations are proposed for consideration and debate. These sustainable investing recommendations include the adoption of standardized definitions, creation of an accepted mutual fund/ETF product classification framework and closure of a disclosure gap.
Sustainable investing promotes the dual objectives of acknowledging the financial implications of sustainability risks in portfolios and also recognizing an increasing interest on behalf of stakeholders in promoting and achieving socially beneficial goals generally and positive environmental outcomes more specifically. Regardless of how one quantifies sustainable investing, it appears to be reaching a critical juncture.
Some sources report that sustainable assets in the United States reached $12 trillion in 2018 and account for one in four institutional dollars under management. Focusing our research more specifically on mutual funds and ETFs in the US reveals that the $1.7 trillion expansion in assets over the 15-month period to March 2020 is due largely to fund re-brandings. In turn, sustainable funds now account for about 9.5% of total industry assets. The dramatic expansion in assets, firms, fund types and their origins has introduced a number of industry concerns and challenges for investment managers, regulators, investors as well as financial intermediaries that call for the adoption of standards.
Access to both the complete article and the combined articles is available at: https://www.sustainableinvest.com/rapid-growth-in-esg-funds-calls-for-adoption-of-standards/
SOURCE Sustainable Research and Analysis
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