Asset managers are placing greater emphasis on active ownership of their investments and engaging on environmental, social and governance (ESG) issues with the companies in their portfolios.
That is according to the findings of an annual survey by Russell Investments, which show that 90% of asset managers now cover ESG in meetings with the senior management of companies they invest in, up from 80% in 2018.
Overall, 35% of respondents said that they always cover ESG issues in their meetings, up from 21% three years ago.
The 369 asset managers surveyed – which are collectively responsible for $79.6trn (£58.9trn) – also said that they hear from clients on climate risk and environmental concerns more than any other issue, followed by diversity and inclusion and social issues.
Moreover, 80% of respondents said that they now explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes, with 29% saying that these considerations drive positive returns, up 9% since 2018.
Every UK manager surveyed said they now integrate ESG into their investment processes – a 13% jump from 2020 – and 97% of managers in Continental Europe said likewise.
“ESG integration within asset management investment and business practices has continued to evolve at a fast pace, with forward-looking materiality assessments being the key consideration,” said Yoshie Phillips, director of investment research for global fixed income at Russell Investments.
“Asset managers are applying more rigorous ESG-related analysis and seeking to provide greater transparency.
“However, there is still much progress to be made, particularly with respect to climate change, which is increasingly defining ESG agendas and ranks as the number one concern among underlying clients.”
The findings also show that 80% of managers rank 'governance' as the most important ESG factor that impacts their investment decisions, reflecting the importance of company management in delivering long-term enterprise value, regardless of industries.
Meanwhile, 14% rank 'environmental' as the top concern, up from 5% in 2018, reflecting an increased focus on tackling climate risk, as well as the impact of regulations.
Although social issues such as diversity equity and inclusion, healthcare availability, and affordable housing have received greater attention during the COVID-19 pandemic, the researchers said that social factors are harder to quantify, and that there are very few investment opportunities directly tied to these issues.
“In last year’s study, we noted that ESG is no longer an optional ‘add on’, but rather an essential part of decision making,” said Jihan Diolosa, head of responsible investing at Russell Investments
“Asset managers have certainly taken this to heart, which is reflected in the improvements we have continued to see over the last twelve months.
“With climate change in particular becoming such a critical issue, managers will have to demonstrate a clear focus and active efforts to make improvements in this area or risk being left behind.”
Image credit: iStock
Author: Chris Seekings