In the face of a global pandemic, environmental, social and governance (ESG) investments generally outperformed in 2020, which may finally break down the last line of resistance among investors and asset managers, suggested Moody’s Investors Service in a new report.
The rating agency said ESG products have been one of the best performing investment categories in recent years, setting the stage for continued growth.
In particular, Moody’s said the category’s strong performance in 2020 “could remove what has been a significant barrier to widespread ESG adoption among retail investors – namely, the concern that these investments require investors to sacrifice potential investment returns…”
Already, demand for ESG investments is on the rise among both retail and institutional investors, Moody’s said; noting that strong flows into the category in 2020 “indicate that investors may already be less worried about any supposed sacrifice in returns.”
At the same time, the ratings agency reported that 2020 “marked a breakout year for ESG investment performance.”
Moody’s said ESG investing is also likely to benefit from the new U.S. administration and its policy shift on environmental issues — including its move to rejoin the Paris Climate Accord, reversing recent rollbacks of environmental rules and prioritizing clean energy growth.
For the U.S. asset management industry, ESG strategies will be a “key driver” of organic asset growth in 2021, Moody’s said.
“We expect the development of ESG products to remain a key focus for asset managers,” it said.