Data shows: marketing content Sells ESG funds

Everyone loves a clear cause-and-effect. You water a plant, you expect it to flower; you kick a ball, you expect it to roll. The same goes for our jobs: we like to connect the dots between effort and success.

We talk a lot around here about how, in investing, marketing is your only value-add.

Generally, though, the line connecting content marketing to a fund’s inflows can feel uncomfortably fuzzy. But when it comes to ESG portfolios, the data couldn’t be clearer:

Marketing portfolios as ESG is directly linked to more inflows. On top, there’s now enough research to suggest how marketers should highlight the ESG value proposition.

Today, we cover some of what science knows about marketing ESG products. We’ll also look at the cynical take that ESG is nothing but marketing.

Marketing can boost the commercial value of a product

Back in March 2016, Morningstar first published its sustainability ratings. Initially, it covered over 20,000 funds, with combined holdings of over $8 trillion in AUM.

It was one of those Big-Bang situations, where a singular event takes place, and you can see exactly what happens afterwards. As an improvement on the Big Bang, you can also compare it to what came before:

Before, investors had no easy way of judging fund sustainability. But now, the worst 10% of funds received one globe symbol 🌏 (indicating low sustainability). The best 10% got five of these globes.

Over the following 11 months, being tagged as low sustainability resulted in net outflows of more than $12 billion. Being labelled as high sustainability led to net inflows of more than $24 billion.

Right now, there’s no standard way to compare ESG levels for different funds. But this experiment shows that funds with higher perceived sustainability will attract greater inflows. Therefore, showcasing ESG indicators that favour your fund compared to its peer group will influence buyers.

First Indicator: How Green is your fund’s name?

Marketing a fund starts from the minute it’s named. A mutual fund with a “green” name will benefit from greater inflows. Here’s how we know it’s true:

Between 2007 and 2016, US Mutual-fund AUM that takes ESG factors into account increased tenfold. Over the same period, AUM for the industry as a whole grew at a much lower rate of 35%.

Asset managers took notice and began to switch existing funds into “ESG funds”. Turns out, this really does help inflows. A study looked at 28 mutual funds that changed their names to “sustainability related” names between 2003 and 2018.

Following the name-change, these funds saw inflows increase by an average of 14.16% per annum! (Also, no substantial change in performance, but a significant rise in portfolio turnover.)

Which keywords in fund names contributed to this magical transformation?
Most popular were – “Sustainable” and “ESG”.

At the other end – no fund in the sample chose to include in its new name “Environment”, “Ethical” or “SRI”.

But does it have a real-life impact?

Until recently, it seemed investors couldn’t get enough of ESG. Inflows into ESG equity months outpaced those to non-ESG funds. Looking just at global-equity ESG funds, AUM was growing consistently up until 2022.

What changed?

The energy crisis, triggered by the Russia-Ukraine war, obviously plays a part. But you could tell the winds had changed long before. The simmering backlash against greenwashing had begun to erupt.

In 2020, a FinText social-listening research found nearly one in three investors raised a thorny question: How could equity ESG funds have any impact if they’re trading in the secondary market?

The marketing value-add to ESG

But research shows that during the Covid-19 crash ESG funds lent support to ESG stocks in two ways:

• When receiving inflows, ESG funds were more aggressive buyers than non-ESG funds. This effect was true before the crash but became more pronounced after it.
• When experiencing outflows, both ESG and non-ESG funds sold more aggressively their non-ESG stocks.

From a messaging standpoint, the impact of ESG funds is that, through their buying power and behaviour, they make ESG stocks a better investment. It tilts (slightly!) the market in favour of ESG stocks, making it easier for these companies to list stabilises their stock price.

While your clients know that buying some stocks over others won’t single-handedly save the planet, they also believe it nudges the economy towards more responsible use of resources.

Who better than investment marketers to communicate that message?