The pace and scale of the change happening in the sustainable and impact investing world means a huge transition is happening in markets as a whole, according to the guests on the latest FTAdviser podcast.
In this special edition of the podcast, sponsored by Artemis, FTAdviser contributing editor David Thorpe examined how impact investing can help advisers and what the next generation of these investments might look like.
Neil Goddin, impact investment fund manager at Artemis, said: “Thirty years ago there were ESG funds but it was all seen as a bit bespoke and specialist and was for a small number of clients. From the outside looking in, it seemed like there was a performance drag. But now there are far more options, and there no longer has to be a performance drag when investing in this way.”
Steve Kenny, commercial director at Square Mile Consulting, said: “The speed at which people are investing in these strategies has really picked up. And I expect that to continue over the next 12-18 months.
"We have seen that almost all of the new model portfolio services coming to market over the past year have had sustainable as part of their offering, and they would not be doing that if the demand was not there. A huge transition is happening, and the speed at which it is happening will only increase."
They also addressed the recent market rotation which has seen growth stocks, including ESG ones, underperform since the start of 2022 while value stocks have done better in response to inflation surging around the globe.
Kenny said: "The sustainable funds that have attracted considerable flows have had a growth tilt and that has been challenge by the recent market rotation. [..] What we have started to see is a greater number of fixed income funds come into the impact space primarily because it provides a more readily identifiable and measurable metric.
"I don't think style bias in terms of impact is as prevalent as it is in sustainable at the moment in time and that's primarily because the number of impact equity vehicles is still at the nascent level rather than fully blown, but we are seeing a growth in fixed income vehicles."
Goddin added: "In many ways the reflection of what is going on in sustainable, ESG, impact is a reflection of what's going on in the whole of global equities. The vast majority of global equity funds these days are not value funds. There is no point pretending they are.
"We are on the other end of the spectrum, away from value. We are at the extreme end. The vast majority of our peers are in the large cap, quality growth-ish area. That's not to discredit what they are doing. I think a lot of them are doing an amazing job. It is not a bad thing but that's where most go and that's the same for global equities as a whole.