2022: threat or opportunity for Sustainable Funds?

ESG funds have grown exponentially until 2021, but by 2022, the outlook from analysts at the Equity Research teams of the world’s leading Investment Banks could be much different. In fact, today, as highlighted in an article written by the FT, sustainable investments are facing rising R&D expenses due to high data costs and the increasingly ‘specialized’ research undermining sustainable strategies. In addition to these expenses, the article also notes that management costs for ESG strategies are also rising and could have a predominant and not financially sustainable weight on companies’ budgets by 2024.

This is why the strong growth in ESG investments seen up until last year could stop if their performance starts to stall or even underperform “non-ESG” investments.

“I am not convinced that all people who invest in sustainable funds do so for environmental and ethical reasons, but simply because they have the best performance” said David McCann, head of the Equity Research team at Numis.

BlackRock CEO Larry Fink, who is always ready to give his opinion on sustainable issues, also said: “We focus on sustainability not because we are environmentalists, but because we are capitalists and fiduciaries for our clients”. 

However, the managers of the largest investment funds with environmental, social and corporate governance themes are convinced that ESG concepts are now embedded in all investment strategies of the operators and that there is no way back.

But Asset Managers, Investment Banks, Hedge Funds and all the Financial Institutions are looking for ‘traditional companies’, not those in businesses such as renewable energy etc., as many of these have already reached the maximum upside.  

Indeed, also citing the FT article, Simon Webber, fund manager at Schroders, thinks that companies such as construction firm Kingfisher, insurer Munich Re and car manufacturer BMW will be big winners in the climate transition.

So, we have reached a point where it’s not enough to declare yourself as an ESG company, or to get into green sectors, but you need to show you have growth potential and you need to be able to operate in this sector, just like in all other industries, and only the best will move forward.

So, in conclusion, will 2022 be a transition year for the ESG world or will it be growth year, confirming the trend of recent years?

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