NEW YORK (March 30, 2022) – ISS Market Intelligence (ISS MI), a unit of Institutional Shareholder Services and a leading provider of data, analytics, insights, media, and events solutions to the global financial services industry, today announced the release of its State of the ESG Fund Market report with analysis and outlook for ESG funds in the U.S. market.
The report finds that long-term ESG mutual fund and ETF assets in the U.S. reached $400 billion by year-end 2021, up from $303 billion a year earlier but remaining relatively low in terms of the overall mutual fund and ETF market. Long-term ESG funds attracted $59 billion in net flows, virtually matching the 2020 record. The pace of growth slowed slightly, though. Organic growth, which measures flows relative to beginning AUM, clocked in at 19 percent, down from 32 percent in 2020.
ESG funds have been dependent on attracting new investments for growth, mainly to the benefit of index funds, according to the report. ISS MI’s competitive intelligence platform, Flowspring, estimates half of net ESG fund sales were funded with capital not already held in other mutual funds and ETFs in 2021; 80% of these newly invested dollars ended up in index funds.
“With the ESG fund market still young, the opportunity for asset managers to attract new investors is vast,” said Christopher Davis, lead author and Head of U.S Fund Research at ISS MI. “Winning their loyalty will be challenging, however, as organizations will need to make clear the value ESG brings to investors’ portfolios.”
Meanwhile, ESG ETFs accounted for a disproportionate share of the fund industry’s most successful product launches. The report finds the top 10 ESG fund launches netted more than $100 million of in-flows for the year.
At the same time, the report notes that with Democrats far more worried about issues like climate change than Republicans, America’s highly partisan politics threatens to limit interest in ESG investments to one side of the political aisle. Analysis of state-level active mutual fund sales data from ISS’ Simfund Distribution consortium members show “blue” states accounting for an outsized slice of active ESG fund flows in the 2020-2021 period. Even so, the report finds that ESG fund sales were broader than a simple red/blue analysis would predict: active ESG mutual fund flows still grew at a faster rate than non-ESG fund flows in 32 states (plus the District of Columbia).
U.S. fund managers’ product development engines shifted into higher gear in 2021, according to the report, launching a record 133 new ESG funds – well above the 75 new offerings debuted in 2020. The 2021 vintage exhibited more of a global flair, with international equity funds making up a plurality of the launches. Bond funds also proliferated as more than twice as many went live in 2021 than in the prior year. Product development also shifted toward ETFs—especially active ones. Almost as many active ETFs (37) came online as passive ones (42).
“Fund managers will only become better at satisfying investor preferences as the ESG market differentiates along product lines,” Davis said. “In the coming years, this ability will reach its zenith as money managers enable investors to personalize their portfolios at a mass scale.”
About ISS Market Intelligence
ISS Market Intelligence (MI) is a leading global provider of data, analytics, insights, media, and events solutions to the global financial services industry. ISS MI empowers global asset and wealth management firms, insurance companies, distributors, service providers, and technology firms by providing cutting-edge market-engagement platforms and the actionable intelligence necessary to fully assess their target markets, identify and analyze the best opportunities within those markets, and execute on comprehensive go-to-market initiatives to grow their business. ISS MI clients benefit from our increasingly connected global ecosystem that leverages a combination of proprietary data, powerful software and analytics, timely and relevant insights, in-depth research, as well as an extensive suite of industry leading media brands that deliver unmatched market connectivity through news and editorial content, events, training, ratings, and awards. ISS MI data and analytics solutions include intelligence from BrightScope, Discovery Data, Financial Clarity, Flowspring, FWW, Investor Economics, MISight, Mortgage Clarity, Plan for Life, RainmakerLive, and Simfund, and ISS MI media brands and market-engagement platforms include Chief Investment Officer, PlanAdvisor, PlanSponsor, Financial Standard, FS Sustainability, Money, and Industry Moves.
Founded in 1985, the Institutional Shareholder Services group of companies (ISS) empowers investors and companies to build for long-term and sustainable growth by providing high-quality data, analytics and insight. ISS, which is majority owned by Deutsche Börse Group, along with Genstar Capital and ISS management, is a leading provider of corporate governance and responsible investment solutions, market intelligence, fund services, and events and editorial content for institutional investors and corporations, globally. ISS operates on an arm’s-length basis and has adopted policies designed to protect the independence and integrity of ISS’ research offerings. ISS’ 2,600 employees operate worldwide across 29 global offices in 15 countries. Its approximately 3,400 clients include many of the world’s leading institutional investors who rely on ISS’ objective and impartial ESG and governance research, market intelligence and fund services and data and analytics, as well as public companies focused on ESG and governance risk mitigation as a shareholder value enhancing measure. Clients rely on ISS’ expertise to help them make informed investment decisions.
Analyst – Communications