A rising groundswell in favor of ESG investing indicates that one in three European equity funds could be ESG-focused by 2030
Regulatory compulsions and structural trends will boost assets under management at ESG equity funds in Europe, say BofAML analysts.
In their study titled “ESG Matters – Europe: Great for the world, good for returns,” the analysts foresee a surge of €1 trillion in assets at these funds by 2030.
Further, one in three European equity funds could be ESG-driven by then.
BofAML: Major trends driving investments into ESG equity in Europe
One of the secular trends in favor of ESG is the “persistent outperformance from higher-rated ESG stocks” versus the performance of their peers. Over the last decade, the advantage of ESG strategies is sharply evident in their superior returns.
“The top quintile of ESG-rated stocks on average has traded at a 20% premium to bottom quintile ESG-rated stocks over the past ten years,” observes BofAML in ESG Matters – Europe.
Political compulsions are another factor. The rising number of seats in the European Parliament won by ecopolitical parties shows the electorate is concerned about ESG.
Another emerging and secular trend is the marked preference for ESG stocks by a very important demographic: millennials.
These structural shifts indicated the moral change in the investor psyche, said Paulina Strzelinska, an author of the report. Therefore, the surge in the number of ESG equity funds in Europe.
Regulatory pressures
The report observes that regulations such as the 2017 EU Non-Financial Reporting Directive were also driving ESG forward. Accordingly, approximately 6,000 EU companies have published ESG data in annual reports.
Further, global climate priorities such as the UN Global Compact and Sustainable Development Goals (SDGs) are changing attitudes.
Companies must also comply with financial reporting as required by the Task Force on Climate-related Financial Disclosures.
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