New ESG & Sustainable Investment Fund Launches & Other Industry Moves

Spurred on by growing investor demand, asset management companies have been making a lot of moves around sustainable fund launches and related activities this year. Here’s a quick look at some of the news regarding ESG and other sustainable fund investments from the past few months.

eVestment reported strong growth in ESG asset flows in 2017, with total assets under management of combined institutional and retail ESG strategies of $650 billion as of Q3 2017, up 12% from the year prior, consisting of assets reported to the eVestment Alliance database.

And new investor surveys by Schroders reveal growing interest in ESG:

Schroders’ Global Investor Study 2017, published in September, showed 78% of more than 22,000 investors in 30 countries think sustainability is more important than it was five years ago. In the Americas, 80% of respondents said that sustainable investing was more important to them, and 70% had increased their allocations to sustainable funds over the past five years.

And in a separate Schroders Institutional Investor Study of 500 pension funds, released in October, 67% of institutional investors believe sustainable investing and ESG will grow in significance by 2022. However, the survey also found that 44% of institutional investors globally are concerned that sustainable investing could hurt their portfolio’s returns. And 41% flagged a lack of transparency and reported data as an issue with sustainable investing.

New ESG-Related Exchange Traded Funds

In October, Nuveen launched the NuShares ESG U.S. Aggregate Bond ETF, which lets investors stick to their ESG principles while investing in the U.S. investment-grade, taxable fixed income market. The ETF is designed to track the Bloomberg Barclays MSCI US Aggregate ESG Select Index.

That same month, Change Finance launched its Diversified Impact U.S. Large Cap Fossil Fuel Free ETF. The company says this is first truly fossil fuel-free ETF; it uses diversified impact screens and tracks an index based on the UN’s Sustainable Development Goals.

In September, MSCI launched the MSCI Factor ESG Target Indexes, aimed at helping investors integrate ESG factors into their investment decisions. The new indexes were created in response to demand, as more investors look to integrate ESG criteria into their investment process, MSCI says.

BlackRock launched an ESG-focused ETF, the iShares MSCI World SRI UCITS ETF, on the London Stock Exchange in October. That came after the firm rolled out a pair of ESG-focused bond ETFs in July: the iShares ESG USD Corporate Bond ETF and the iShares ESG 1-5 Year USD Corporate Bond ETF. The firm now offers about a dozen ESG-focused ETFs.

UBS, meanwhile, has rolled out a new series of indexes that are intended to be used to create ETFs and other products for pensions, annuities and retail investors. The line-up will include a global sustainability index as well as indexes aligned with the UN’s Sustainable Development Goals. More than $1 trillion of the firm’s assets under management are in sustainable strategies.

Open-End and other ESG Fund Launches

In October, UBS Asset Management launched its Global Sustainability Equity Fund. The open-end fund will focus on companies, in both developed and emerging markets, that provide solutions to problems like climate change, water scarcity and air pollution and clean water scarcity.

Also in October, HSBC unveiled two low-carbon funds. The HSBC GIF Global Lower Carbon Equity Fund will look for a lower carbon footprint of its portfolio companies by reducing its exposure to companies with high greenhouse gas emissions. The HSBC GIF Global Lower Carbon Bond Fund, meanwhile, will invest in investment-grade corporate bonds through a lens of understanding the impact of individual issuers and sectors on total greenhouse gas emissions.

Northern Trust Asset Management also launched a pair of funds in October, including the Northern Funds US Quality ESG Fund, with a focus on large- and mid-cap companies with favorable ESG scores, and the Northern Trust World ESG Leaders Equity Index Fund, which will apply an ESG screen to the MSCI World ESG Leaders Index.

In September, Envestnet launched its Gender Equity Large Cap Core Portfolio, part of its series of Quantitative Portfolios (QPs). The new fund uses company-level ESG data from data provider Sustainalytics.

That same month, M&G Investments rolled out a global listed infrastructure fund with a focus on ESG considerations.  It will avoid investing in tobacco, alcohol, adult entertainment, gambling and controversial weapons companies, as well as companies that get more than 30% of their revenue from coal or nuclear power.

In June, East Capital launched its Sustainable Emerging Markets fund, which invests across countries, sectors and market caps. The Swedish firm has about $3 billion in assets under management.

Other Sustainable Fund Investing News

A project seeking to rank large publicly traded companies based on the United Nations’ Sustainable Development Goals was launched in September. It’s one of the biggest open-source sustainability data and ranking projects to date.

The World Benchmarking Alliance will grade companies with market caps of over $1 billion, looking at sustainability factors including climate change and health care. Aviva Group is funding the project, which is being launched in partnership with the Index Initiative, the Business and Sustainable Development Commission and the United Nations Foundation.

ESG factors are moving beyond being just investment screens and are starting to become a consideration in bond pricing and credit-risk assessment. Researchers are finding increasing evidence that ESG factors play a role in credit risk. For that reason, experts say, it’s vital that ESG factors are included in bond valuations

A July report from the UN’s Principles for Responsible Investment detailed the growing importance of ESG to bond pricing and credit risk analysis by both investors and credit rating agencies. This is expected to only grow in coming years.

Impax Asset Management said in September that it will acquire 100% of Pax World, one of the world’s first socially responsible investors, in a $53 million deal. Together, the asset managers will have nearly $14 billion of assets under management.

The merger of Europe-focused Impax and U.S.-focused PAX World will create a global leader in sustainable investing, said Impax CEO Ian Simm during a New York event.

As the world transitions to a more sustainable economy, and the divestment movement grows, clients on both sides of Atlantic are looking for sustainable investment solutions, Simm said.

Major fund groups making ESG a priority

In October, BlackRock announced it has hired Brian Deese to run its fast-growing sustainable investment strategies business. Deese, who will become BlackRock’s head of sustainable investing, environmental initiatives for the Obama White House and was deputy director of the Office of Management and Budget.

In August, T Rowe Price hired Maria Elena Drew, formerly an ESG specialist at Goldman Sachs Asset Management, as its first director of research. She will oversee responsible investing and help implement the firm’s ESG strategy.

Also in August, State Street announced the appointment of Rakhi Kumar as head of ESG and Asset Stewardship. In this expanded role, Kumar and her team will grow their ability to provide socially responsible investment strategies and manage the firm’s clients’ assets worldwide.

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