November 28, 2023 | Stamford, CT — Investment fund distributors are easing up on ESG requirements for asset managers on their platforms in the face of concerns about performance, questions about regulations and reporting standards, and lower demand from end investors.
Since at least 2020, retail banks, private banks, insurance companies, independent financial advisors, and other wholesale fund distributors in Europe and Asia have increasingly adopted ESG requirements for fund managers looking for placement on their platforms.
The adoption of those policies appears to have peaked—at least for now. In Asia, the share of fund platforms with ESG requirements for managers dipped from 2022 to 2023, and distributors participating in the Coalition Greenwich Voice of Client – 2023 Asian and European Intermediary Distribution Studies expect that share to decline even further over the next five years due to challenging investment conditions. In Europe, the share of distributors with ESG requirements has held steady at just shy of two-thirds. European fund distributors cite another group of factors that could be contributing to the slowdown in the adoption of ESG standards: difficulty measuring impact and other concerns about ESG compliance.
Lagging Demand from Investors and Questions About Regulations and Reporting
Challenging investment conditions seem to be a key driver of the ESG slowdown in Asia.
“A renewed focus on risk-management, stability and performance during a market drawdown appears to have taken precedence over concerns about ESG in Asia,” says Mark Buckley, Head of Investment Management at Coalition Greenwich and coauthor of Investment Fund Platforms Hit Pause on ESG Requirements. In Europe, some wholesale fund distribution platforms are likely pausing or slowing their own process for establishing ESG rules for managers on their platforms until they have more clarity on a final ESG framework for European funds.”
Distributors Foresee Robust Demand from Investors
Wholesale fund distributors expect to see strong demand from investors on their platforms across a range of equity, fixed-income and alternative funds in the next year. Distributors in both Asia and Europe expect investment-grade bonds to attract the biggest net inflows, followed by high-yield bonds and Asian equities.
On Asian platforms, demand is expected to remain strong for domestic and Asian fixed income, as well as absolute return products. Meanwhile, Asian distributors expect investors to grow allocations to private debt, infrastructure, and multi-asset funds, while reducing exposure to real estate. In Europe, distributors believe infrastructure will continue to attract strong positive inflows, while investors are expected to reduce allocations to hedge funds.
2023 Greenwich Quality Leaders in Asian and European Intermediary Fund Distribution
For the second consecutive year, volatility in global financial markets has prompted wholesale intermediary fund distributors in Asia and Europe to gravitate to fund providers that rank among the most well-known and trusted brands among the investors on their platforms.
In Asia, that role was filled last year by Allianz Global Investors. In Europe, platform gatekeepers turned to Allianz Global Investors and Nordea. The performance of those two asset managers distinguished them from rivals and earned them the title of 2023 Greenwich Quality Leaders in Intermediary Distribution.