Global survey highlights rising consensus around materiality of ESG, as well as impact of client demand and regulation
The global role of ESG investing is being cemented as asset managers across the world recognize its potential and importance among stakeholders, according to a new study.
In its seventh annual ESG Manager Survey, which takes views from 369 global asset managers representing nearly US$80 trillion in AUM across a broad range of asset classes, Russell Investments found over 80% of respondents explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes, with 46% highlighting the material role of ESG factors in assessing risks and 29% underscoring their influence in driving positive returns.
“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.”
When asked what ESG concerns they hear most from their asset owner clients, 60% of respondents – including 97% from Continental Europe and 46% in the U.S. – cited climate risk/environmental issues. Diversity and inclusion/social issues were a distant second, identified by 20% of respondents globally and 29% of those in the U.S.
In line with prior years, managers identified governance as the most important ESG issue shaping their investment decisions (80%). At the other extreme, social issues lagged (6%) as challenges in quantifying social factors and finding investment opportunities directly tied to such issues seemingly eclipsed the greater interest generated by the COVID-19 pandemic.
Environmental issues have risen in prominence over the past four years, from being cited by just 5% of participants in 2018 to 14% in this year’s survey. Aside from the tightening concerns around tackling climate risk, that trend is also being driven by the impact of regulations, with the most drastic changes seen among managers in Continental Europe (from 4% to 30%) and Canada (4% to 27%).
The increasing attention from both a client demand and regulatory perspective has prompted rising demand for ESG talent, particularly dedicated professionals who spend more than 90% of their time on ESG matters. That trend is clear to see in Canada, where slightly more than half of asset managers surveyed (52%) reported employing dedicated ESG professionals, up from 26% in 2020.
“ESG integration within asset management investment and business practices has continued to evolve at a fast pace, … Asset managers are applying more rigorous ESG-related analysis and seeking to provide greater transparency,” said Yoshie Phillips, director of Investment Research – Global Fixed Income at Russell Investments. “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.”