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The Actuary The magazine of the Institute & Faculty of Actuaries

ESG ‘bucks the trend’ of declining asset growth

Assets managed in environmental, social and governance (ESG) mandates rose by almost a quarter last year, despite overall assets under management falling.

Sustainability has become an unavoidable issue ©iStock

That is according to a new study of the world’s 500 largest fund managers by the Thinking Ahead Institute, which found a growing appreciation of the importance of sustainability.

The findings show that assets managed in ESG mandates grew by 23.3% in 2018, while total assets under management fell 3% from the previous year to $91.5trn (£71trn).

The study also found that assets managed according to ESG principles grew 17.8% in 2018, while client interest in sustainable investing, including voting, rose 83%.

The Thinking Ahead Institute said that a stronger underlying purpose, beyond the pursuit of growth and profit, is now a differentiating factor in an overcrowded industry.

“Sustainability has become an unavoidable issue, and talk on sustainability is becoming action,” said head of research, Bob Collie. 

“There is also a growing appreciation of the importance of culture. Good culture does not appear by accident, and our ability to assess and adapt it is developing.”

The report explains how “connecting the dots” between culture, strategy, beliefs, values, vision and mission has become a critical leadership challenge and opportunity.

It also reveals that 242 firms in the 2008 Global 500 list no longer feature, with BlackRock, Vanguard Group and State Street Global the three largest managers for a fifth successive year.

While the past decade has been a fairly benign environment for asset managers, most expect increased pressure from rising regulatory activity, fee compression and high technology costs. 

A survey of the Global 500 found that 81% had increased resources deployed to technology and big data, while 57% had experienced an increase in the level of regulatory oversight.

“The regulatory burden on the industry is a symptom of a lack of trust," Collie explained. "Rebuilding that trust means more focus on the long term.

"Without a clear sense of purpose, you can end up being just another one of 500 firms fighting for elbow room in an ever-more-challenging environment.”

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