New regulations, products, and money will make 2020 a banner year for ESG in Europe

Sustainable and responsible investing around the themes of Environment-Social-Governance (ESG) will come into its own in 2020 in Europe, says the latest monthly report by Cerulli (Investment Europe). And demand impetus may come from retail investors, the report goes on to say.

Europe: New ESG regulations

Investors will be able to utilize the EU’s sustainable finance taxonomy, expected to publish this year. They can, therefore, assess the carbon footprint of companies. Taxonomy ratings for companies would be useful guideposts for ESG-oriented investors.

The EU may also define and adopt new regulations for the incorporation of ESG into indices. This will, therefore, be done in a transparent, consistent and comparable manner. These regulations, which may be released this year, will prevent “greenwashing.”

The EU may boost its annual budget for climate change from $24.3 billion in 2018 to $100 billion in 2025. The increase in budget will allow the EU to assume the mantle in the global mission towards carbon neutrality.

These developments will, therefore, strengthen the regulatory and political environment around European ESG, a boon for investors.

New ESG Products in Europe for retail investors

“Listed investment trusts are already proving popular with retail investors, with several trusts having raised significant amounts of money in 2019,” says Fabrizio Zumbo, associate director, European asset management research at Cerulli.

“At present in the equity space, the strategies available to investors range from broad ESG funds with exclusion policies to thematic funds, impact investing products, and strategies targeting the UN’s Sustainable Development Goals,” he adds.

Moreover, according to Zumbo, product providers are now becoming more ESG-proficient. They can now provide ESG screens that can boost long-term returns, thereby increasing their repertoire of investing avenues.

Product providers are also now lodging sustainable versions of multi-asset fund ranges for the retail market, says Zumbo.

In the equities market, investors can choose broad ESG funds with exclusion policies, thematic funds, impact investing products, and strategies relating to the United Nations Sustainable Development Goals (SDGs). In the fixed income space, retail investors could get a foot in the door of green bonds, so far the preserve of institutional investors.

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