Assets continue to flow into investments with environmental, social and governance lenses. Assets are expected to top $53 trillion, globally, next year says research and consulting firm Celent. The U.S. will represent $20 trillion of that.
The disruption caused by the COVID-19 pandemic seems to have accelerated the trend. Opimas estimated in 2019 that ESG assets would reach $35 trillion by 2020. In June it found assets surpassed its projection, reaching $40.5 trillion.
To be sure, much of the rush into ESG investments is coming largely from institutional investors and sovereign wealth funds; retail financial advisors have been less eager to embrace the strategies.
While many say that’s because their clients aren’t asking for these types of investments, other advisors say the hurdles include inconsistent and inaccurate data and a fair amount of “greenwashing” in the marketing of ESG retail mutual funds and ETFs.
The overwhelming abundance of ESG data available now may make it easier to find whatever a client needs, but it is still largely dictated by what companies willingly report, as well as the parameters of the data-gatherers.
“You may be working with information that is just not accurate and also expensive,” said Rachel Robasciotti, the founder of Robasciotti & Philipson, an investment management firm based in San Francisco.
As a provider of social justice investments strategies, R&P has seen ESG data that seems often incorrect, outdated or incomplete, making it hard to compare companies, said Robasciotti. Her firm curates its own data from social activism groups it has partnered with to supplement the information it purchases from research firms.
Some ESG ratings put out inconsistent data, depending on their view of the world, further complicating matters. There are different views on what traits they rank and how they measure the value of certain exposures over others.
“Many wealth and asset managers use multiple ratings providers and score providers to balance the built-in bias,” said Will Trout, head of wealth management research at Celent. “For the wealth management advisor, it’s very hard to get a clear take. There’s just a lot of uncertainty in the marketplace on the buy side.”
Green washing also complicates the market for retail advisors. Some asset management firms rebrand their funds or re-write their prospectuses to give them an ESG veneer, without changing the portfolio.
A wirehouse advisor who asked not to be named, said better quantifying not just ESG portfolio data but, more importantly, the impact a particular ESG-screened portfolio has on the companies, society and environment a client invests in, would be “a game changer.”
Until then, inconsistent data is likely to continue hindering the broader adoption of ESG strategies among retail investors, said the wirehouse advisor.