Russell Investments study highlights an unstoppable force in investments decisions

Survey of asset managers shows how ESG is permeating almost all major decisions

Russell Investments study highlights an unstoppable force in investments decisions
Steve Randall

It wasn’t so long ago that considering environmental, governance, and social factors when making investment decisions was considered a niche and mostly the domain of sustainability champions.

Now ESG decision making is mainstream in the investment industry, as highlighted by the latest ESG Managers Survey from Russell Investments which questioned 189 asset managers globally, representing US$20 trillion in assets under management with most offering equity and fixed income, a third offering private markets assets, and just over a quarter offering real assets.

“As the industry continues to focus on responsible investing practices, active managers from all major asset classes are increasingly incorporating ESG considerations into their investment processes and hiring for ESG-related roles,” said Kris Tomasovic Nelson, senior director, head of ESG Investment Management, Russell Investments.

Just 7% of respondents said that ESG factors do not drive their investment decisions, down from 22% a year ago.

“We believe this reflects a deepening recognition that ESG issues — encompassing areas such as climate risk and labor relations — are financially material,” added Nelson.

Among the important considerations prominently shaping investment decisions are:

  • a need to materially reduce security risk (26%)
  • ability to drive positive returns (19%)
  • governance concerns (19%)
  • climate risk (15%)
  • social risk (15%)

Overall, climate risk is the top ESG concern of asset managers.

ESG hiring

Three quarters of the asset managers that took part in the research said they have hired dedicated ESG professionals in the last year in areas such as ESG teams (23%), data integration and analytics (10%), stewardship (9%), and equity investment (7%).

With regulatory challenges increasing – especially in the UK and Europe - an emerging hiring trend in compliance was also noted.

The study also revealed how direct engagement with companies through active ownership is the top source of ESG information for asset managers.

Two thirds of managers reported ESG metrics for all funds, (in 2022 it was 59%) led by carbon emissions (56%) and then diversity statistics (24%, up from 19% in 2022).

ESG challenges

While commitment to ESG may be strong, implementation does not come without challenges.

Diverse client interests is the also cited as a challenge but, only in the U.S., there is concern over performance which aligns with the debate south of the border about financial materiality.

The frequent paint point of reliable and accurate ESG data is also high on the agenda. Among Canadian respondents,

“Key challenges around ESG integration persist, such as the availability of data, lack of standardized reporting for corporations, and meeting diverse client needs,” Nelson said. “Nevertheless, fewer managers are reporting that ESG considerations do not affect their investment decisions. Our annual survey shows an upswing in commitments to responsible investing reporting frameworks and initiatives, and our research suggests that ESG has firmly established itself as a lasting force in the investment landscape.”

Making a commitment

Finally, the report noted that just 27% of survey respondents are current signatories to the Net Zero Asset Managers Initiative (NZAMi), with 6% planning to join within a year, and this is mostly driven by respondents in Europe (80%), the UK (58%), and Japan (40%) with 20% of U.S. participants already signed up.

“We know the road for global ESG integration is not without its challenges, but our survey shows that markets are moving toward integration,” Jihan Diolosa, head of Global ESG Strategy at Russell Investments. “From here, it is up to asset managers to translate their commitments into reality and ensure their engagement has the desired impact on industry practices.”