ESG investing is "now entering a true mainstreaming phase" after years of foundational efforts, according to a report from the CFA Institute.
The report, Future of Sustainability in Investment Management: From Ideas to Reality, also notes that the COVID-19 pandemic "has focused investors on the vulnerability and resilience of the financial system and intensified the discussions around sustainability," including the materiality of social factors. Two new scenario applications in the report are climate energy and social status.
The CFA Institute surveyed individual investors and asset owners in 15 markets and held 23 virtual roundtables for the report. It found that 85% of CFA Institute members take ESG into account in their investment processes, up from 73% in 2017. Data from the Principles for Responsible Investing show that the number of signatories increased 28% in the first half of 2020 and assets under management grew 20% to more than $100 trillion.
Addressing investment managers' business models, the report said that while only 19% of institutional investors and 10% of retail investors currently invest in products that incorporate ESG factors, 76% of institutional investors and 69% of retail investors have interest in ESG investing.
"The business model for investment organizations pursuing sustainable investing must make commitments on the full range of resources, processes, and incentives that are necessary to drive an innovation of this magnitude," the report said.
In investment models, the report found that the most used features are best-in-class/positive screening (56% of survey respondents) and ESG integration (53%), followed by ESG-related exclusions (48%). Voting, engagement and stewardship are used by 40%, and thematic is used by 35%.
On expected growth areas, the report said that industry professionals expect to see more ESG index tracking and quant funds, ESG thematic products, ESG multiasset products, climate transition strategies and long-term engagement, as well as better benchmarks.