More than eight in 10 UK asset managers have adopted an environmental, social and governance (ESG) programme amid growing regulatory pressure and investor demand, new research has found.
After surveying asset managers representing £15.5trn, PricewaterhouseCoopers (PwC) found that 82% now have an ESG programme in place, with nearly all of these viewing it as a transformational exercise for their organisations.
Three-quarters said that regulation and investors had played a “significant” or “very significant” role in promoting the firm's focus on ESG, although the majority are still not fully prepared for major regulatory changes.
Furthermore, a quarter said that the COP26 climate summit in November – which is expected to deliver the biggest shake-up to global environmental policy since the Paris Agreement – was a driver of their increasing focus on ESG in recent months.
The COVID-19 pandemic has also accelerated the ESG focus, highlighting fundamental societal shifts in the context of environmental, social and healthcare crises.
Despite these pressures, almost two-thirds of asset managers surveyed described ESG as a “significant opportunity” to develop new product ranges in response to changing consumer preferences.
“Our research shows that client pressure and the post-Covid realignment of the global economy have added to the regulatory imperative around ESG products,” said Elizabeth Stone, asset and wealth management leader at PwC UK.
“If firms want to remain relevant and stay ahead of the competition, they should now think strategically rather than tactically, considering fundamental change across their organisations.”
COP26 is likely to lead to a tightening of regulation, such as the UK’s plan to make climate-related disclosures mandatory by 2025. This adds to regulations already in play, such as the EU’s Sustainable Finance Disclosure Regulation (SFDR).
However, cross-border differences in regulations are creating a challenge for firms, with almost two-thirds of survey respondents saying that there is a lack of international consistency in ESG regulation.
Only 25% and 13% said that they are fully prepared for EU SFDR and EU Taxonomy Regulation, respectively.
“Asset managers have an active role to play in addressing societal and environmental challenges and in helping to ‘build back better’,” Stone continued.
“To fulfil this role, firms will need to be clear on their ambition across the full range of ESG factors. Ultimately, those who are prepared for transformational change will see better results.”
Image credit: iStock
Author: Chris Seekings