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Asset management
Business report
2
MARCH 2021
ESG growth opportunities
“It’s inevitable” Funds that use environmental, social and governance (ESG) criteria are a burgeoning segment of the investment industry. Delano asked executives at four industry outfits about the most promising opportunities for Luxembourg funds: James Purcell of Quintet Private Bank, Julie Castiaux of KPMG, Kelly Hebert of M&G Investments and Anthony M. Coveney of ThomasLloyd. Do you think ETFs will play an increased role in mainstreaming ESG funds? JAMES PURCELL Whether purists like it or not, ETFs have a huge role to play. They are liquid, cost-effective and highly rulesbased--which helps investors to understand what they are buying. Yes, the majority of ESG ETFs are based upon headline ratings from third-party providers and these tend to oversimplify complex sustainability issues, but undoubtedly ETFs will have a major role in mainstreaming ESG. Volume alone will ensure that. JULIE CASTIAUX It’s inevitable. The demand is clearly there for ESG to reach far beyond the niche group of alternative investment houses it currently inhabits. In the not too distant future, we’ll see ESG products of all stripes on the market, including ETFs aimed at retail investors. KELLY HEBERT We believe the entire market--both active and passive--needs to play a role in promoting sustainability and embedding ESG in the investment chain. ESG-focused ETFs can serve a valuable purpose in providing an accessible and affordable option for clients who want to see their investments aligned
with stronger ESG standards. However as a primarily active manager we believe in the value of taking a more selective approach based on deep fundamental ESG analysis, and that this is likely to deliver better and more sustainable longterm outcomes for clients. What ESG strategies could really stand out in the next 12 months? ANTHONY M. COVENEY Post-covid, governments will need to reboot their economies. Infrastructure investment will be encouraged through fiscal stimulus and regulatory incentives. That, combined with historic low interest rates, is driving investor demand for income-generating real assets. From your point of view, which asset classes are lacking proper ESG screening? J.P. I’d offer a counterpoint and say equities--and that’s despite the long history the equity market has with ESG. I say this because in fixed income one can purchase dedicated assets--assets designed with sustainability in mind--such as green bonds, multilateral development bank debt, microcredit and, increasingly, sustainability-linked loans. In equities, ESG is always a philosophy--a technique to view conventional companies differently, akin to a value or growth approach. Words AARON GRUNWALD
EUROPEAN ETFS Ireland and Luxembourg are by far the largest European exchange-trade funds markets, according to data from Deborah Fuhr of ETFGI, a research and consulting firm. Globally, assets increased by 25.6% last year, reaching a record $7.99trn at the end of December 2020. Source
ETFGI
Assets under management, €bn 800 700 600 500 400 300 200 100 0 2010
2020
Number of ETFs by domicile 1,000
800
600
400
200
0
2010
Ireland France Netherlands
2020
Luxembourg Switzerland
Germany Sweden