Less than one in 10 investment strategies are achieving the highest levels of environmental, social and governance (ESG) performance, according to analysis from Mercers Investments business.
Since 2008, Mercer has been assigning ESG ratings to investment strategies that span asset classes and geographic regions. The ratings reflect the degree to which portfolio managers integrate the consideration of ESG factors and utilise shareholder stewardship practices within the investment process.
Of the 5,175 strategies assessed, 57% were in listed equities, 20% fixed income and the remaining 23% across real estate, private equity, hedge funds and others.
Private equity has the highest proportion of highly rated ESG strategies, while hedge funds and fixed income had the fewest.
Geographically, emerging markets and Asia-Pacific had the highest proportion of top ratings, while Canada has the least.
"There is still much work to be done by the investment community to fully integrate responsible investment practices," said Andrew Kirton, Mercer's global chief investment officer.
"We would expect the number of highly rated strategies to increase over the next few years as more and more investment professionals come to recognise the sound investment and competitive reasons for active ownership.
"The way money is being managed is evolving - our role is to help clients achieve better investment outcomes, and we believe ESG analysis and active stewardship practices support this. In particular, active engagement with companies where performance is seen as wanting ought to have a complementing role in investment management, alongside the sale and purchase market disciplines."
More information about the ratings breakdown can be found here: Mercer’s ESG Ratings Update – 5,000 and Counting.