Institutional Asset Manager 07.07.23

Down but not out

It may be hard to believe given the amount of coverage given to environmental, social and governance (ESG) investing, but institutional investors are exiting responsible equity funds in their droves.
According to Refinitv research on the sustainable investment industry in 2023, economic and regulatory worries in Europe, and the anti-ESG movement in the US are driving investors out of the sector.
ESG equity funds suffered USD15.4 billion of net outflows in the second quarter, exceeding net inflows in the first three months of 2023.
The findings coincide with comments made by Larry Fink, CEO of BlackRock, that it was no longer "safe" to use the term ESG since it has become "weaponised" by politicians on the left and the right.
Yet in the same interview with Fox Business, Fink says BlackRock is working with all the asset owners to help them on long-term investment solutions. "And part of the long-term solution is working on decarbonisation. Hopefully, we could develop new technology to bring down the cost even more", he says.
This focus on investing in technology to help achieve net zero ambitions is shared by Octopus Investments which has launched a Pre-Seed Deep Tech Fund targeting a fundraise of GBP40 million.
The fund is designed to give the "most promising deep tech founders" the capital and skills they need to take breakthrough technologies to market and provide an opportunity for global institutional investors "looking to back some of the most exciting businesses on the journey to building a sustainable planet".
Rubina Singh, General Partner for the Octopus fund, tells us: "We are in the midst of multiple global crises, with climate change being one of the biggest challenges of our generation. We believe that the companies we are investing in, and the innovation they are bringing, are what is needed to create the next paradigm shift in how we tackle these challenges."
Another company providing power to the sustainable investing elbow is global investor services group IQ-EQ which is helping provide consistency for asset managers collating ESG data from investee companies.
Lyons O’Keeffe, ESG Director at IQ-EQ, says it is no longer adequate to expect companies to fill out spreadsheets containing reams of questions since these are invariably completed sporadically, and answers are left open to interpretation.
"We have found that if you use good technology, to just help people fill in the form, you get much higher completion rates and you’re starting to get information you can really use," O’Keeffe says.
This may prove particularly helpful as companies attempt to comply with ESG disclosure requirements under incoming regulations including the Taskforce for Climate-related Financial Disclosures in the UK.
So while it may not feel safe for the CEO of the world’s largest asset manager to utter the words ESG, much on the rest of the industry is still comfortable with sustainable investing. ESG inflows may be down, but the sector is certainly not out.
Gill Wadsworth, Editor
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