Responsible Investment Funds Report
The CFA Institute Research and Policy Center releases a report on responsible investment funds, aiming to analyze the development of global responsible investment funds.
CFA Institute believes that as investors, regulators and society continue to grow in interest in sustainable development, responsible investment funds are becoming an important investment product, and it is necessary for financial practitioners to understand them.
Related Post: CFA Institute Releases Definitions of Key Terms in Responsible Investing
Background of Responsible Investment Funds
Regulatory policies on responsible investment funds are an essential factor affecting the development of responsible investment funds. For example, EU issues the Sustainable Finance Disclosure Regulation (SFDR) to requires asset management companies to disclose ESG data related to investment products and company policies and proposes an EU Taxonomy to provide asset managers with a way to evaluate investments. These regulatory policies have promoted the development of the responsible investment fund market.
For individual investors and institutional investors, the purpose of choosing responsible investment is different. CFA Institute found that individual investors usually choose responsible investment funds that are consistent with their values and preferences, while the main reason for institutional investors to allocate responsible investment funds is to improve risk-return rates. Most institutional investors believe that sustainable information is financially material to investment performance and therefore will incorporate ESG and other information into investment decisions.
Development of Global Responsible Investment Funds
CFA Institute uses data from the Refinitiv Lipper database to analyze the AUM and capital flows of various global responsible investment funds from 2013 to 2022. The Lipper database divides responsible investment funds into several categories, such as ESG, socially responsible investing, negative screening, positive screening, impact investing, and ethical investing.
CFA Institute analyzes data on more than 88,000 responsible investment funds, of which 52% are stock funds, 33% are bond funds, and 12% are hybrid funds. As of the end of 2022, stock funds among responsible investment funds reached US$3.4 trillion, bond funds were US$1.7 trillion, and hybrid funds were US$0.9 trillion. In each fund category, the AUM of funds subject to negative screening exceeds 60%, making it the largest responsible investment fund category in the world. The total assets of all responsible investment funds account for about 15% of the total global fund size, which has increased slightly in the past decade.
In terms of capital flows, stock funds, bond funds and hybrid funds all have an upward trend. Stock funds have a cumulative inflow of US$1.2 trillion, bond funds have a cumulative inflow of US$1.1 trillion, and hybrid funds have a cumulative inflow of US$0.6 trillion. Bond funds experienced outflows ($39 billion) in 2022, which may be related to the poor performance of bond funds during the market’s interest rate hikes. Barring this one exception, all categories of funds experienced inflows in each year.
In terms of fund fees, European Securities and Markets Authority (ESMA) finds that the fees of responsible investment funds are generally lower than other funds. This may be because responsible investment funds allocate more to large companies, and these companies are mainly located in developed countries. Some studies argue that responsible investment funds still have lower fees after controlling for variables such as company size and location. ESMA finds that impact funds have the lowest fees of all responsible investment fund categories.
The size of responsible investment funds held by individual investors and institutional investors has also changed. The proportion of positions held by individual investors dropped from 72% to 65%, while the proportion of positions held by institutional investors increased from 28% to 35%. Negative screening funds are the most heavily held responsible investment fund category by individual investors, while positive screening funds are the most heavily held by institutional investors.
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