Italian investors turn risk-off but embrace ESG

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In early September, we travelled to Milan to meet with a number of top fund selectors fromItaly’s major banks. As far as markets are concerned, we found them in a less than ebullient mood. Risky assets, with the notable exception of US equities, are out of favour, while government bonds are in fashion again. 

There are a few footnotes to be placed with regards to Italian selectors’ apparent preference for the dull and unexciting, however. There is a fast-growing interest in niche ETFs that capture trends such as robotics, and the majority of interviewees are anticipating the rise of sustainable investing, or ESG. They are convinced ESG is a trend that will ultimately transform their portfolios.

ESG – entering the mainstream

The asset management world has been all about ESG for some time, and the trend has reached Italy too. Italian selectors increasingly feel compelled to offer sustainable options to their clients. Even if they are not fully convinced ESG investing is an alpha-generating exercise, they believe they should offer this service to their clients by default. That’s a fundamental difference with fund selectors in Spain and Portugal who tend to only offer ESG funds ‘on demand’.

But Italian selectors do not just offer ESG funds as a service to their clients. Rather, they see ESG investing as a major transformation that will over time fundamentally change portfolios -as economies and companies worldwide need to become sustainable in order to survive. They believe the anti-green agenda of Donald Trump is an anachronism that will ultimately be remembered as just a footnote in history. As one interviewee put it: “When Trump goes, all economies including the US will become green.”

Italy’s fund buyers want to educate their clients and are eager to learn more about the implementation of ESG in investment portfolios. Only a very small minority of interviewees still believe ESG is just a temporary fashion that will ebb away over time.

Italian selectors, however, need convincing on one important point: they feel a lot of asset managers are launching ESG- or impact-themed funds just to capitalise on the popularity of sustainable investing, without having sufficient ESG expertise behind these funds. They believe ‘greenwashing’exists in large amounts. “Whatsome sustainable fund managers do is to filter out the least sustainable companies,” one interviewee said.

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