Though many commentators have linked the surge in popularity of ESG funds and products to the purchasing power of the coming of age millennial consumer, Gilbert thinks it stems from something more universal – the desire to express individual preference.
In his view, one of the primary drivers behind the ESG phenomenon is investors’ newfound understanding of their agency when it comes to making key decisions about the investments within their portfolios.
“Investors are waking up to the fact that they can start to incorporate their values and preferences into their portfolio,” Gilbert said. “Just as you can go to the supermarket now and have the option of buying Fairtrade bananas and organic meat, you can similarly incorporate ethical decisions into your portfolio. And as individuals, we all have different preferences with regards to specific criteria and different investment strategies.”
For years, numerous investors were not aware of the control they had over their own portfolios because many advisers chose to keep them in the dark, said Gilbert. And the asset management industry has mirrored the diversification of investor preferences by broadening the types of ESG strategies on offer.
ESG has evolved from making ethical investments via negative exclusionary ratings to a longer-term positive focus on environmental and governance factors, Gilbert stated.
Data from the European Fund and Asset Management Association’s (EFAMA) reveals that from 2011-2013, a variety of ethical strategies experienced tremendous growth, including impact investing (131.6%), the more traditional exclusions approach (91.2%) and norms-based screening (70.4%).
