Zenith sees ESG being mainstream for international shares

Research and ratings house Zenith is predicting ESG integration will become mainstream and the bare minimum expected for all investment strategies.

In an International Shares sector report released this week, Zenith said that over the past two years, the number of Socially Responsible Investment (SRI)-themed global equities products rated by Zenith had increased four-fold.

“This, coupled with the corresponding strong growth in funds under management of the underlying strategies, underscores the shift by many investors to SRI-themed options,” the ratings house said.

“Zenith dispels the common notion that SRI strategies are ‘feel good’ investments that underperform traditional investments. In fact, SRI-themed indices drastically outperformed the benchmark whilst ‘sin’ stocks underperformed. Zenith believes the stark performance differential highlights the shift in the mindset of investment managers, allocating to ‘good’ and divesting from or avoiding ‘bad’,” the sector report said.

“We found that investment managers that take an active approach to the assessment of ESG matters have offered a greater level of capital preservation, without compromising returns. Furthermore, we observed that the opportunity set for SRI-themed strategies has grown exponentially, which we believe should result in a higher probability of SRI strategies continuing to meet investment objectives.”

The Zenith report also suggests that money has been flowing towards ESG and SRI investments with a steady increase in asset flows to SRI global equities strategies.

“As at October 2021, funds under management (FUM) attributable to SRI-themed equity ETFs was approximately $US 350 billion, representing a staggering increase of 2,200% from December 2014,” it said.

“In line with the significant increase of SRI global equities investment options on Zenith’s approved product list, FUM in the underlying strategies has grown at an exponential rate,” it said.

“Whilst growth remained steady from 2016 to 2019, FUM of Zenith’s rated strategies has grown by over 300% over the past two years.”