Investors seek more tailored approaches to ESG

The survey, which canvassed opinion from a broad mix of international firms, found 93 per cent of asset managers recognise growing appetite from their clients, while 80 per cent have observed a rise in requests for bespoke ESG solutions. The research also showed that over 70 per cent of respondents incorporate ESG factors into 75-100 per cent of their funds’ investment processes, up from just over 50 per cent in 2014.

Isabel Emo Capodilista, Head of Multi-Manager Research at Aviva Investors, said:

“ESG integration has become mainstream and, by itself, is no longer a differentiator. Our findings show investors want more tailored approaches as to how ESG can work best for them. Similarly, one-fifth of respondents undertake ESG stress tests to better understand risks that could impact investments and how to protect against them.”

In turn, the proportion of investment managers incorporating ESG considerations into fund manager and analyst remuneration has risen fourfold since 2014, to 42 per cent.

Isabel Emo Capodilista said:

“Good progress has been made in rewarding managers based on ESG criteria; however, almost one-third of respondents could not say with conviction that all their managers and funds take these considerations into account. Likewise, although 70 per cent of respondents believe ESG issues should be integrated into executive pay, just 26 per cent stated their own company does this. This is indicative of a struggle within the asset management industry to find consistency in its approach.”

In terms of approaches taken to ESG integration, 90 per cent of participants cited direct engagement with companies, while use of third party research (83 per cent) and rating holdings on ESG (70 per cent) were other common responses.

Isabel Emo Capodilista added:

“It is encouraging that over half of active managers who engage with companies believe it will improve performance, which suggests frameworks such as the Principles for Responsible Investment are driving positive change and establishing industry standards. That said, a contradiction still exists between belief and execution and there is room for greater uniformity across the industry.”

The survey identified several challenges around ESG integration, including availability and quality of data, low senior leadership buy-in, difficulty in measuring impact and understanding material ESG risks.

Isabel Emo Capodilista said:

“The industry faces challenges around consistency of language and definitions of ESG. Addressing these would reinforce confidence in the products and services investors receive. While greater company disclosures and a better understanding of quantifiable ESG factors has resulted in an uptick in the quality and accuracy of data from the investment industry, further improvements should facilitate the future growth and development of ESG strategies.”

-ENDS-

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