I'm Mary Green, Client Portfolio Manager for ESG and Hermes at Federated Hermes.
What is the current state of ESG investing?
The state of ESG investing is alive and thriving in the wake of the global pandemic. We found in our 2020 Federated Hermes ESG investing survey. One stunning statistic is that nine out of 10 advisors are being asked by their clients about ESG investing and responsibility. Which suggests to me that, if you're an advisor and you're not talking to your clients about ESG, perhaps they're talking to someone else about it. We've also found that the social factors have risen in prominence when considering risk evaluation. About two thirds of respondents said that working conditions, public safety, healthcare, pay inequality are important things to consider when deciding on an investment program. And that does not surprise us in the middle of a global pandemic and 2020's social dislocations.
How are investors accessing ESG today?
Well, investors are actually becoming more sophisticated about ESG. We see the retail gravitating towards ETFs and passive. But, the institutions are embracing active management more and more, almost 50% of institutions said that their primary way of accessing ESG is through active management which dovetails really well with Federated Hermes' conviction that responsible investing is the best way to build long term wealth.
What is the future of ESG?
ESG investing is very well established within equities and we think that fixed income could be the next frontier. And that is validated by our research at Federated Hermes which shows a connection between positive ESG behavior and pricing in the fixed income markets. So that's going to be a trend to watch. Also, responsible investing credentials are really rising as a decision factor when allocating towards ESG. Of course performance is always first, but given good performance, many of our respondents reported that responsible investing credentials and validating those responsible investing credentials, are really important when choosing a strategy or an investment manager.
Disclosure: Views are as of 9/18/2020 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. The 2020 Federated Hermes ESG Investing Survey is a survey of U.S. investment professionals (institutions, financial advisors and high-net worth individuals) with input on investment portfolios regarding their views on responsible investing and consideration of environmental, social, governance (ESG) factors. The complete survey is available on FederatedInvestors.com/2020ESGInvestingSurvey. There is no guarantee that considering ESG risks will be a successful investment approach. Investing involves risks including possible loss of principal. Stocks offer higher return potential, but their prices are more volatile than those of bonds. Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. Federated Advisory Services Company 20-30442 (9/20)