Environmental, social and governance (ESG) factors have been gaining in importance in the investment community, but the lack of standardised data remains a major hurdle, according to a new study – ESG Asset Owner Survey – by investment consultant bfinance.
The report found that 84% of the 256 asset owners canvassed said it was problematic to obtain consistent reporting across asset managers and asset classes. The respondents, including institutional investors, insurance companies and foundations, represented a combined total of $7tn in assets.
Key stumbling blocks identified included the lack of transparency around the information as well as the different regulations emanating from various countries which creates a fragmented environment. In addition, there is frustration over the “inconsistencies among developed nations in terms of goals and policies,” the report said.
The report also revealed that investors are having difficulties in validating the investment case for ESG or impact investing and more than 50% had problems finding external asset managers that are closely aligned with their ESG approach.
ESG investing had been gaining traction but the pandemic has been a driver in part because European ESG leaders have strongly outperformed the broader equity market since the coronavirus-spurred selloff last March.
Overall, almost half of asset owners globally say that ESG considerations are now of “high importance” to their investment approach while 39% believer they are of “moderate importance” – a cumulative total of 87%.
European investors are still out in front and prioritise the subject more than their global counterparts, with 45% of US respondents saying that ESG issues are of “minor” or “no” importance.
Asset managers that do not up their game though will miss out. The report found that ESG criteria is important to over 90% of respondents when selecting external asset managers.
Investors are also more demanding in terms of a firm’s own credentials. Around 76% have “stricter” ESG criteria for manager selection than they did three years ago.
For example, over 60% of respondents said they were unlikely to hire an equity manager who is not a signatory of the UN Principles for Responsible Investment, the world’s biggest industry body for sustainable investing.
About a third would not appoint a hedge fund manager that lacked gender or ethnic diversity on its staff, while a fifth cited ESG concerns as the main reason for having fired managers.
“The results show the increasing breadth, depth and complexity of ESG implementation as investors look to take a more consistent, portfolio-wide, data-grounded and in many cases impact-minded approach,” said Kathryn Saklatvala, Head of Investment Content for bfinance.
She added, “Yet the advancement also brings challenges: investors with increasingly clear objectives and priorities in this space are even more frustrated by the lack of clear, consistent, standardised data on many of the key issues.