Road to ESG adoption paved with data challenges, survey reveals

Global poll of asset managers reveals rising role of ESG is complicated by lack of reporting consistency

Road to ESG adoption paved with data challenges, survey reveals

As global appetite for ESG continues to heat up, the pressure is on for asset managers to provide appropriate products for investors. One of the major stumbling blocks, according to a new survey, stems from corporate data.

In a recent poll of 300 U.S. and European asset managers sponsored by the Index Industry Association (IIA), 85% agreed that ESG is a high priority for their companies. The consensus forecast among those respondents estimated that ESG assets account for 26.7% of their portfolios in 12 months, and 43.6% in five years.

“The survey highlights that, while there is growing global demand for ESG investment products, a lack of corporate data reporting standardization and the complex array of ESG reporting organizations leaves ESG investors wanting more clarity about the available investment products,” said IIA CEO Rick Redding.

Nearly two thirds (63%) of the investment companies polled identified a lack of quantitative data from companies as a major (24%) or moderate (39%) challenge to ESG implementation. About the same proportion (64%) were concerned about inadequate transparency or insufficient corporate disclosure with respect to firms’ ESG activities.

Another point of frustration was the lack of meaningful metrics on ESG performance, with three fifths of participants (61%) agreeing that it is a major or moderate challenge to fund and asset managers trying to implement ESG. Nearly the same number (58%) said a lack of data standardization makes the work difficult.

The dominant role of equities in ESG was another point of contention. Stocks accounted for 90% of flows into ESG funds in the U.S. and 68% of those in Europe. However, nine tenths of survey respondents (88%) underscored a need to embrace ESG across other asset classes, including fixed income.

ESG investing is still heavily dominated by one asset class: equities. These attracted about 90% of sustainable funds in the U.S. in 2020.1 In Europe, about 68% of ESG funds went to equities in the last quarter of 2020, with about 18% going to fixed income. However, 88% of survey respondents highlighted the need for greater acceptance of ESG in more asset classes such as fixed income.

The survey also underscored the importance of indexes in ESG investing. Nearly an equal proportion of asset managers said they use indexes for measurement/benchmarking (40%) and as a basis for investment portfolios (39%). Usage of indexes for investment is particularly pronounced among funds where ESG is a core piece of all activities (56%).

More than four fifths of asset managers (84%) also said they trust index providers a lot or somewhat to push financial services ESG innovation and standards.


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