Although the environment has seemingly dominated headlines recently, governance, as in previous years, continues to rank as the most important ESG factor impacting asset managers’ investment decisions, according to Russell Investment’s annual ESG survey.
The global survey which canvassed 369 asset managers, representing $79.6 trn of assets under management across multiple asset classes, found that overall, 80% pointed to governance reflecting the importance of company management in delivering long-term enterprise value regardless of industries.
Environmental concerns have grown over the past four years from 5% in 2018 to 14% in this year’s survey. This mirrors the increased focus on tackling climate risk, as well as the impact of regulations.
The social component continues to lag at 6%, which was roughly in line with the 2020 survey results. Although issues such as diversity, healthcare availability, and affordable housing have received greater attention during the pandemic, they are harder to quantify and there are very few investment opportunities directly tied to these issues.
The survey also found asset managers are increasingly incorporating ESG-specific considerations with over 80% explicitly incorporating qualitative or quantitative ESG factor assessments into their decision-making processes.
It showed that 46% look at the material role ESG factors such as climate change play in assessing potential security risk, an 11% hike since 2018.
In addition, 29% highlighted the influence of ESG considerations in driving positive returns, a rise of 9% since 2018.
The survey showed that almost all regions reported a steady uptick in the extent to which ESG considerations are regularly embedded into investment practices.
Every UK manager surveyed said they now integrate ESG into their investment processes, a 13% jump from 2020, while continental Europe’s asset management community recorded a figure of 97%.
US managers lag behind at 82% although is a significant hike from the 67% in 2019.
“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 – Global Fixed Income at Russell Investments.
She added, “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.”
©Markets Media Europe 2021
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