Investire | May 2022

Surely, ESG investing is politically correct. However, just like any other big trend, sustainable investing is likely to lose a bit of shine as its novelty fades away.

Let’s start from what, according to many, should be a given: ESG investing is not an asset class, however all asset classes should be ESG.

However, ESG investing is quite heterogeneous. In fact, the SFDR distinguishes between article 9 funds and article 8 funds.

In 2021, the number of strategies classified as ESG (article 8 and 9) increased exponentially as a result of the entry into force of the SFDR. However, their growth also increases the fear of possible greenwashing.

Since 10 March 2021, the day of the introduction of the Sustainable Finance Disclosures Regulation, the number of traditional funds turning ESG has been increasing dramatically. Over 500 investment strategies have been relaunched or renamed to be classified as article 8 or 9 of the Regulation, which indicate sustainable investments.

It’s worth recalling that article 9 indicates funds fully aimed at sustainable objectives, while article 8 identifies funds promoting, among other things, environmental or social sustainability, or a combination of the two.

Currently, the number of ESG funds is more than double than it used to be in 2020 and represents half of the new supply. But the number is likely to increase even more, since almost all AMCs are currently working for their funds to be classified as sustainable.

The growth of the supply should correspond to a substantial growth of the demand: based on the revision of MiFID II, as of August financial advisors will be asked to take into account clients’ preferences in terms of sustainability. Thus, a higher number of savers is expected to choose ESG products.

At the end of 2021, article 8 and article 9 ESG assets exceeded 4.000 billion euros, that is 42,4% of the entire European universe. Today, we are on track to reach 50%.

Of course, this is a very good sign, although such a sudden acceleration demands caution. The risk is not only greenwashing; this sudden proliferation might generate confusion.

Just consider that 34% of end investors still think that ESG funds yield less than “normal” funds in terms of performance.

As often happens in times of uncertainty, with the outbreak of the war in Ukraine, investors tend to focus on safe havens such as gold or long-term government bonds. This puts ESG investing at risk of being perceived as a temporary trend or even a luxury.

A comparison between the MSCI Europa, Emergenti and USA stock indices and the corresponding MSCI ESG Leaders indices of the same regions after 1, 2, 3 and 5 years brings to light that funds that invest in businesses with an ESG policy overperformed the benchmarks.

So, why, instead of filling advertising spaces with similar images dominated by the colour green, don’t we communicate these data in black and white?

Nicola Ronchetti