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Asset Managers Not Linking Policy to Action on ESG

Global survey finds progress on ESG integration policies and processes, but too many managers not considering sustainability when making crucial investment calls.

A quarter of asset managers are failing to consider ESG factors when making investment decisions.

According to its global annual Sustainable Investment Survey, UK-based investment consultancy Redington said only 74% and 61% of asset managers could evidence ESG considerations influencing respective buy or sell decisions over the past six months.

This is despite over 90% of asset managers stating that they integrate ESG considerations into their fundamental research and 78% declaring that they expect ESG integration to have an additive impact on financial performance.

The survey, which questioned 112 global asset managers with an aggregated US$10 trillion in combined assets under management, however showed substantial progress in many other areas with 99% of surveyed managers confirming use of firmwide responsible investment policies.

The number of asset managers with dedicated responsible investment headcount has increased by 15% year-on-year and the number of firms linking remuneration to the integration of sustainability risks also rose by a fifth, now covering 70% of firms.

Another positive was the rising number of firms reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD), climbing from only 28% in 2020 to 45% in 2021.

“Given that almost all asset managers, across most asset classes, indicate that ESG factors influence their investment decisions at least sometimes, we would like to see these words being backed up more substantially by investment actions,” said Paul Lee, Head of Stewardship & Sustainable Investment Strategy at Redington.

“Setting policies and processes is just the beginning. What’s really needed to further the sustainability agenda within the asset management community is a tangible link between ESG analysis and investment decisions.”

Equity engagement lacking depth

Redington also questioned asset managers on their stewardship and engagement policies, finding an increased emphasis on thoughtful, results-oriented stewardship. The survey showed that 83% of respondents reported having a firm-wide stewardship and voting policy and, on average, this policy covered over 88% of assets under management.

However, Redington said it again found evidence that such progress on policies was not always being backed up by tangible actions.

Of those asset managers who stated they had a stewardship and voting policy covering all their assets under management only 44% of those voted on 100% of resolutions and almost 10% did not exercise any voting rights at all.

Moreover, when analysing the level of the engagement efforts undertaken by different strategies, Redington asked asset managers to differentiate between deep engagements, which involve at least three back-and-forth dialogues between a manager and company, and light engagements, which consist of fewer than three dialogues.

The results show that this ‘quality’ of engagement varies drastically between asset classes.

For example, while over 60% of real asset engagements were considered deep engagements, this compared to just 15% of equity engagements. Responses from credit managers meanwhile showed that on average they were not undertaking any engagement across 75% of their overall portfolios.

Nick Samuels, Head of Manager Research at Redington, said: “Engagement is an incredibly powerful catalyst for positive and sustainable change. While it’s encouraging to see indications of a high level of thoughtfulness on the part of real asset managers, we would expect a higher proportion of deep engagements across equity strategies, too – especially given the asset managers’ level of influence as shareholders.”

He added that it was particularly surprising to see such a low level of credit-focused engagement from asset managers.

“Credit investors are often uniquely equipped to be able to shift attitudes and practices. We would like to see them make full use of this influence and engage with borrowers to drive change on material ESG risks and opportunities, particularly at initial issuance,” he said.

PRI becomes the norm

However, Samuels cited reasons for optimism including increased industry collaboration and more firms integrating ESG considerations and supporting this with alignment, incentivisation and public disclosures.

“As stewards of the world’s capital, asset managers are in a prime position to maintain dialogues and positively influence a broad range of stakeholders. It’s therefore very reassuring to see the formation of industry partnerships and asset managers seeking to engage on sustainability topics with a broad range of key stakeholders beyond the companies they’re invested in,” he said.

“Fortunately, simple characteristics such as having a firmwide responsible investment policy and being a signatory to the Principles for Responsible Investment are also now the norm.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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