In Charts: Retail ownership of responsible investment funds dominates institutions

Retail ownership of responsible investment funds outweighs institutional ownership globally, with the exception of the US

A far greater proportion of responsible investments is held in retail share classes compared with institutional investment holdings, shows a report by non-profit CFA Institute.

The report tracks flows into responsible investment funds from 2012 to 2022, defining these funds as those explicitly stating that they consider and act on responsible investment factors when making investment decisions. It identifies markedly lower net inflows into responsible equity and mixed asset funds in 2022, along with net outflows from responsible bond funds. 

Net assets across the three asset classes dropped in 2022, which the report attributes to “the global downturn in equity and bond markets and a reduction in flows into responsible investment funds”.

The CFA finds that 64 per cent of global responsible investment funds’ total net assets were held in retail share classes in 2022, outweighing the comparable proportion of responsible investments in institutional holdings, which sat at 36 per cent.

The report also identifies differences between retail and institutional ownership in Europe and the US. Institutional ownership of responsible investments in the US overtook retail ownership in 2018, when over 50 per cent of US-domiciled responsible investment fund total net assets entered into the hands of institutions, as the chart below shows. Meanwhile, in Europe and globally, retail investing has dominated institutional investment when it comes to responsible investing.

The US and European markets recorded growth in responsible assets held by institutional investors from 2012 to 2022, with institutional ownership of responsible investment funds in Europe increasing from around 30 per cent to 35 per cent, while in the US, this surged from approximately 38 per cent to 70 per cent.

“Asset owners in the Americas are more likely to incorporate ESG factors into the investment process to enhance the risk-return profile on their investments,” the report says. “This situation contrasts with that of European investors, who are more likely to incorporate ESG factors into the investment process for ethical reasons.”