Global survey reveals increasing influence of ESG in investment activities, critical role of engagement, and more
In spite of the COVID-19 pandemic – or perhaps because of it – more investment firms around the world are incorporating additional ESG metrics into their investment process, as well as deepening their pool of resources dedicated to responsible investment.
That’s according to Russell Investments’ latest ESG survey, which polled 400 asset managers around the world and across a broad range of asset classes including equity, fixed income, real assets, and private markets.
“The results of our 2020 survey show the fund management industry continues to embrace ESG integration, even amid pandemic-related challenges and volatility,” Yoshie Phillips, director of Investment Research – Global Fixed Income, said in a statement. “They are seeking better ESG information, deeper resources, broader consideration within investment processes and clearer regulatory standards.”
The firm’s manager-research team found that asset managers are raising the extent to which they incorporate ESG-specific considerations into their investment processes.
Eight tenths (78%) of managers in the latest survey said they explicitly incorporate qualitative or quantitative ESG factor assessments into their processes, compared to 73% last year. Looking at the results by country, the survey found the most progress has occurred in the U.S. (added 11% over the last year’s survey), Canada (15%), and the UK (11%).
Governance has retained the crown as the most critical ESG consideration for asset managers, with 82% of participants citing it as the most impactful ESG factor in their investment decisions. But the other two pillars, environmental and social issues, are gaining prominence as this year’s results showed a 4% increase in the number of managers citing environmental considerations as the factor with the most impact.
With respect to the sources of ESG-related information, engagement was the most frequently named, particularly among 92% of fixed-income managers who said they proactively engage with the companies behind their investments. Bondholder engagement is being adopted by more fixed-income managers, the survey found, particularly as a way to learn more about the underlying entities or companies, improve transparency, and influence business practices for the better.
External data providers are also playing a bigger role, Russell Investments found, as more asset managers use third-party data points to supplement their in-house views. That trend, the firm said, reflects the asset-management communities rising recognition of the importance of ESG integration in assessing investment opportunities.
“ESG is no longer an optional ‘add-on’; it is now an essential consideration that asset managers have to incorporate into their decision-making processes,” said Jihan Diolosa, Head of responsible investing EMEA. “Clear challenges to progress remain, particularly in certain regions. However, the broad direction of travel is clear and the asset managers who do not adapt to the changing landscape will be left behind.”