Limited data remains greatest challenge in ESG arena

Limited data and a lack of standardised reporting in many asset classes  continues to be the biggest challenges for asset managers in the environment, social and governance (ESG) space, according to a the Russell Investments’ eighth annual ESG Manager Survey.

The survey canvassed 236 asset managers, split into roughly 30% having less than $10 billion in assets under management, and 33% more than $100 billion.

Climate change and environmental issues were found to be their clients’ top ESG concern, with 45% selecting climate risk, versus 39% from the previous year.

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In addition, 23% of respondents chose environmental issues in general, versus 21% in 2021.

In Europe, 68% of European managers identified climate risk as most important compared to 60% in 2021.

However, managers are struggling to get good enough information to invest in line with a green agenda.

Many firms assign qualitative ESG scores, while carbon data is more often scientific based.

Among fixed income firms, 41% have ESG-related data for developed market sovereign bonds, while only 27% have some form of carbon data in this segment.

The survey also showed that 20% of fixed income firms have some form of ESG data in the securitised bond market while just 8% have some form of carbon data in this segment.

“The results highlight further improvements are still needed around ESG data, ” said said Yoshie Phillips, head of fixed income ESG investing at Russell Investments.

She added, “In the corporate bonds space, there are still several challenges such as disclosure practices in privately held companies or applying carbon measures in green bonds.

Outside corporate issuers, ESG-related reporting continues to evolve in an unstructured fashion due to the absence of clear industry standards. There are some proposed frameworks to account for sovereign issuers’ emissions which is a welcome development”,

While carbon emissions data captures a snapshot of an entity, the survey reveals a growing trend toward evaluating the energy transition with forward-looking views.

This is reflected by asset managers increasingly collaborating with industry organisations focused on the energy transition such as the Transition Pathway, the Science Based Targets and the Net Zero Asset Managers initiatives.

Moreover, 26% of the respondents are signatories to the Net Zero Asset Managers initiatives, up from 10% last year.

“During our conversations with asset managers, we often hear about the challenges of third-party ESG data providers’ outputs and how they try to augment it with their in-house forward-looking ESG analysis,” Phillips said. “We are seeing more support for standardised disclosures in key ESG metrics.”

The survey also shows growing efforts to incorporate diversity, equity and inclusion (DEI).  (DEI) practices in asset management.

Among those reporting their DEI statistics, 54% have less than 20% women and 40% have less than 20% ethnic minorities in their investment teams.

Meanwhile, 4% of the respondents have more than 40% women and 17% have more than 40% ethnic minorities in their investment teams.

“DEI demographic data disclosure is scarce in the industry, and we found that gender disclosure is generally greater than ethnic minority status,” said Phillips.

She added, “Recognising the regulatory differences where reporting such data is discouraged in certain countries and the global definitional challenges, having this DEI data set allows us to monitor progress as well as give us a better sense of the overall demographic of the industry.”

@Markets Media Europe 2022

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