BAML has highlighted three secular drivers that could lead to significant inflows into equity ESG funds by 2030.
In a research note, the bank says the drivers could lead to one trillion euros flowing into equity ESG funds over the next 10 years. The three key drivers for ESG investing are:
- The rising number of ecopolitical parties in power
- A changing investor base (millennials, green behaviour)
- Ten years of persistent outperformance from higher rated ESG stocks, which attract a lower cost of capital
BAML also point out that the number of ESG funds has grown to 1000+ with inflows up 800% in the last two years. Europe is leading with nearly 70% of funds based there. However, only 7% of total EU funds are focused on ESG, although the bank says ESG investing in EU equities could rise by EUR800-1,100bn by 2030 with one in three funds being ESG focused.
European stocks score persistently higher on ESG factors, accounting for 64% of MSCI ESG AAA-rated ESG stocks in the MSCI AC World index.