The IA's Cummings: Investment managers must meet consumer demand for responsible funds
Spike in savers backing ESG vehicles during pandemic
The pandemic has brought into sharp relief how our lives around the world are inextricably linked, both through the global spread of coronavirus and how we have come together within our communities to tackle and build back better from this crisis.
This collective desire to make a difference has been echoed in the behaviour we have seen from investors, with the steep growth in savings being put to work in responsible and sustainable investment funds as people chose to invest for the greater good not just a return.
Record outflows from the fund market as the global lockdown took hold in March were followed by a recovery that saw record inflows of almost £1bn into responsible investment funds in April.
This was not a one off. Three months out of the past four saw investors put more than £900m in responsible investments.
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Even in March itself, at the height of the market turmoil, responsible investment fund inflows stayed positive. Savers invested four times as much in responsible investments in the first half of 2020 than they did in the first half of 2019.
What has happened? We only have to glance at the news over the past year to know that climate change is more and more at the forefront of people's minds - and the IA's fund flow data suggests that the pandemic has made many of us think harder about our impact on the world, and whether now is the time to try to make a difference.
Whatever the reason, our industry is responding to meet investor needs.
Change in investor climate
Climate change may have dominated the sustainable investment agenda before the crisis, but the trends we see go beyond this compelling reason for action alone.
Savers are increasingly choosing to invest in those funds that single-out companies that are making a positive impact on people's lives. The 'social' component of ESG appears to be becoming more important for investors as we navigate our way through Covid-19.
Although impact funds still make up a small proportion of responsible investment funds under management, inflows have been increasing quickly and this is likely to be a growth area going forward.
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The growth in total responsible investment funds under management - 89% since January 2019 - also tells a story of strong performance. It used to be said that sustainable investment led to an inevitable trade-off with poor performance. This lazy thinking has shown to be false during this crisis.
Sustainably-run businesses are companies that are well-positioned to thrive as we seek to rebuild the UK economy post-pandemic, and recent studies suggest that responsible and sustainable funds have been more successful at outperforming their benchmarks in 2020 than funds in the wider universe.
Also to be factored in are issues such as surging returns in technology and healthcare, or screening out energy and oil/gas stocks, which have not performed well through Covid-19. We will be monitoring performance over the longer term to ensure investors know just how well these funds perform.
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