At least for now, Rabobank also concentrates on actively managed funds. “We believe active sustainable investors can discern themselves from passive funds by only selecting the most sustainable companies and by engaging with companies to improve their sustainability profile, for example through voting at shareholder meetings,” says Moennasing.
Different shades of green
And Moennasing (pictured right) prefers what she calls dark green funds, which screen for ESG-factors “as strictly as possible”. In an echo of French’s concerns, she qualifies most ESG trackers as ‘light green’.
Even the MSCI SRI indices, which have relatively strict eligibility criteria, often include companies with questionable sustainability credentials, such as the Texas-based oil & gas exploration company Pioneer Natural Resources, which has almost a quarter of its oil reserves in shale oil.
“So the greener an ETF becomes, the more interesting it will be for us.”
While passive solutions in the ESG space arguably still have to make some strides, it’s likely that they will gain market share rather quickly.
One powerful reason for this is that the popularity of plain vanilla ETFs will simply enhance their chances to succeed. On top of that, interest for sustainable investing is simply a rapidly growing market, says Andrew Gilbert, responsible for ESG investing at Parmenion, a discretionary fund manager recently acquired by Aberdeen AM.
“Some 400 of the 2800 IFA’s we service now invest in ESG funds. And this is going up by 30 a quarter,” he says. “And a lot of those people simply will want a passive solution too, as is the case for every asset class.” And asset managers will undoubtedly play their part as well. As the market for ‘ordinary’ index trackers is becoming crowded and profits margins go down, they will be eager to graze in green investing’s pasture.
