Why ESG is Becoming a 'Business Imperative' for Asset Managers

What the desk is arguing

The desk contends that ESG considerations are becoming a critical driver of investment strategies among asset managers, enhancing both risk management and reputation. According to Manley, the positive correlation between sustainability practices and long-term returns will prompt traders to recalibrate their allocation strategies, affecting demand for related currencies.

This growing trend towards ESG has been substantiated by a substantial shift in market dynamics, with a notable influx of almost $300 billion into sustainable funds in 2020 alone, indicating a rising appetite for ESG-aligned investments. This behavior suggests a robust framework for future currency valuations in line with sustainable growth metrics.

Where it sits in our coverage

In our analyses, we currently target a consensus exchange rate of 1.075 for USD/EUR, with a range spanning from 1.04 to 1.12. Specific firms supporting this view include:

• JPMorgan: 1.10 (Mar-26)
• BofA: 1.04 (Mar-26)

This perspective is positioned at the upper end of our range, indicating some confidence in a strengthening of the Euro relative to the Dollar, reflective of the growing emphasis on ESG investments.

How other firms see it

Several firms are aligned with the desk's position, underscoring the same conviction in the importance of ESG. For instance, JPMorgan highlights the risk-reward balance associated with sustainability, while others also support similar views. Conversely, BofA presents a more skeptical perspective, forecasting less upward pressure on ESG-linked currencies.

Notably, the USD/EUR exchange rate is intricately tied to broader themes such as the European Central Bank's policy shifts and the global trend towards sustainable finance, which are critical to monitoring in this context.