Trump a ‘fillip’ for ESG as inflows outpace other strategies

Inflows into ESG funds are growing at a significantly higher rate than traditional funds, as fund houses argue Donald Trump’s climate scepticism is failing to slow momentum and may even be a “fillip” for ethical strategies’ popularity.

Last year, traditional active strategies in Europe suffered €91.5bn of outflows, pulling 4.1 per cent from total assets under management, Morningstar data shows. In contrast socially conscious net flows increased to €6.4bn, adding 5.5 per cent to existing assets under management.

The popularity of passive ESG strategies has been even more notable with inflows increasing AUM 18.1 per cent in 2016 with €7.1bn of inflows. That’s as traditional passive fund inflows hit €20.2bn in 2016, increasing AUM by 3.1 per cent.

In the years from 2012 to 2015, inflows have boosted AUM 35.1 per cent, 19.6 per cent, 13.5 per cent and 22.8 per cent in each respective year.

Socially responsible funds still represent a small proportion of total assets under management at 6.9 per cent, although this is up from 5.6 per cent in 2011. Most of the growth in market share has been in passive strategies, which have risen from 0.8 per cent to 1.7 per cent over the period.

While US president Donald Trump has argued climate change is a hoax, his election last November failed to dampen appetite for inflows into ethical strategies, with IA figures showing record inflows of £807m in December – the month following his win.

That compares to inflows of £70m in January, £28m in February and £32m in March, which are more inline with monthly inflows before December.

Trump backlash

Fund manager, and head of responsible global equities at BMO Global Asset Management, James Jenkins says there is no evidence that the election of Donald Trump will stall appetite for the investment style.

Inflows into the F&C Responsible Global Equity fund were £95.2m last year taking total AUM to £497.9m at the end of 2016.

The fund has returned 29 per cent over the last year just ahead of 28.9 per cent in the IA Global sector, and has outperformed the sector more convincingly over three years with 59.2 per cent compared to 43.2 per cent.

Jenkins says: “Ironically I think the election of, on paper, the least responsible president in some length of time is something of a fillip to investors such as us. I think there’s more of a need for an unmet counterbalance for investors, such as us, to hold companies to account.”

Royal London Asset Management’s Mike Fox, who manages the £322.6m Sustainable World Trust, says they were surprised by their strong performance in Q1 in the face of Trump’s election and inauguration.

The fund has returned 5.7 per cent in the last three months compared to 3 per cent in the Mixed Investment 40%-85% Shares sector. For the last six months it has returned 13.7 per cent compared to 7.4 per cent in the index.

Insight Investment ESG analyst Joshua Kendall says the time he spends working with client teams and portfolio managers on climate change focussed strategies has “picked up markedly” since the start of the year.

“Since Donald Trump became president every other week I’ve been working with our client teams here on a number of new products from clients who are really interested in this space.”

Kendall says it is all the more remarkable given the £542bn asset manager, which has recently launched a push into the intermediary space, focuses on fixed income, whereas demand for socially responsible strategies has traditionally been focussed on equities.

“It is your larger businesses, both corporations and investors, who are starting to say this is something we need to do now. We know it’s important and it’s a risk and we can’t wait for regulation to happen.”

Paris Agreement

Alix Chosson, energy fundamentals analyst at AXA IM, points to the Paris Agreement raising more awareness of climate risks among institutional investors rather than President Trump.

Institutional investors, like ourselves, see that dismantling environmental regulation can bring short-term economic benefits but create serious longer-term challenges that will need to be addressed by policy-makers at some point,” Chosson says.

She says the asset manager has increased its focus on climate change in the last three years, most recently committing to divest from its companies most exposed to coal, a move worth £150m.

Clisson adds that the growth of science-based climate research is providing institutional investors with “additional tools” to integrate climate-related issues in their investment decisions.