This earnings season, publicly traded asset managers assured shareholders they are positioned to reap the benefit of increased investor interest in ESG strategies.
But sources debate whether firms can count on fees from these strategies to deliver a more stable source of revenue compared to other active funds.
While there is a demand for environmental, social and governance products, it is still early to tell what impact it could have on manager earnings, said Matthew R. Crow, president of Mercer Capital Management Inc., a business valuation and financial advisory services firm in Memphis, Tenn.
"Ultimately, the new (assets) pouring into ESG products is not significant enough yet to affect anybody's earnings," said Mr. Crow, who leads the in- vestment management industry team at Mercer Capital.
And although firms' presence in the ESG marketplace has yet to materially impact their businesses, Mr. Crow says attention to ESG factors has already impacted money managers' ability to win new mandates.
"Both individual and institutional investors are (setting) mandates to put a percentage of their investments in ESG strategies. So, they are going to be looking for it in requests for proposals" for external managers, Mr. Crow said.
Gary Shedlin, chief financial officer of BlackRock Inc., New York, said in the company's fourth-quarter earnings call last month that its iShares ESG MSCI USA Leaders ETF raised more than $1 billion in 2019 alone after launching on May 9, representing the largest equity ETF launch in the industry in the past 15 years. The fund, which launched with more than $800 million from Ilmarinen, Finland's largest pension insurance company, had nearly $2 billion in assets as of Feb. 20. Ilmarinen managed €49.1 billion ($54.6 billion) as of Sept. 30.
During the Jan. 15 earnings call, Chairman and CEO Laurence D. Fink also noted that BlackRock intends to double its ESG ETF offerings to 150 over the next few years, to include "sustainable versions" of its flagship index funds.
Prior to its earnings call, BlackRock issued a letter to clients on Jan. 14 saying it was "making sustainability integral to the way BlackRock manages risk, constructs portfolios, designs products and engages with companies." That day the firm also issued a separate letter to CEOs pushing companies to confront climate change.
In response, Moody's Investors Service, New York, deemed the move a credit positive for the firm.
"BlackRock's scale and global reach (it reported $7.4 trillion in assets under management at year-end 2019) positions the firm to create products — and perhaps more importantly, the standards — that will establish it as a market leader in ESG investing," a Jan. 17 Moody's report said. "We expect the sustainable investing market to grow rapidly, and BlackRock's size and prominence, coupled with its recent commitments, will elevate its position in this market."
BlackRock's AUM was up 6.6% for the quarter ended Dec. 31 and up 24.3% for the year. The firm reported nearly $4 billion in revenues, up 7.7% over the prior quarter and up 15.8% year-over-year.