Time for year-end tallying – and the numbers for responsible investment (RI) were up notably last year according to a new report out from LSEG, owners of numerous market data services such as FTSE Russell and Lipper.
LSEG finds that total global assets in RI Funds stood at US$2.7 trillion at the end of 2023, up by 14% over the prior year-end. For comparison, the total value of the UK stock market is US$2.4 trillion. Equity (stock) funds still dominate the category at 60% of total assets, while bonds, a category we’ve written on a few times, but generally does not get the same attention, continued its slow and steady rise to just over US$550 billion, or 20% of total assets. In fact, RI Bond funds was the only category that saw positive investment flows every month of 2023.
However, as noted in last week’s post, the bloom may be off for RI funds in general – the peak for flows into RI funds was clearly during 2020 through 2021. Part of this trend last year may be due to performance, on average RI equity funds returned 14.2% for 2023 – a strong result in absolute terms, but lagged compared to 27% for broad US equities, and 21% for Europe equities.
Notably, the largest net outflows from RI funds occurred in the US, where possibly the “ESG Backlash” that receives much attention, is also having an impact on investor demand. As you know from other reporting and potentially from your investment managers, alternative energy categories underperformed notably last year, in part due to generally rising interest rates (these firms often need to borrow money for capital investments into their energy projects), and this showed in investment flows too, with this category of RI funds losing nearly US$4 billion in assets for the year.
One interesting spot of this report that we’ll look to explore further: RI money market funds – essentially responsible cash-like portfolios – have seen steady growth over the years, presenting possibly an alternative to deposits at your organization’s Dirty Dozen bank.