More Asset Managers Factoring ESG into Investment Decisions

Growing number of firms using external ESG data providers to supplement in-house views.

Asset managers are increasingly incorporating ESG metrics into their investment processes, while also expanding resources and increasing engagement, according to a new survey conducted by Russell Investments, a global investment solutions provider.

According to the survey, 78% of managers globally now explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes, a rise of five percentage points from 2019. The biggest increases in the number of firms incorporating ESG factors were found in Canada, the UK and the US, but these three still lagged Continental Europe, Japan and Australia / New Zealand.

The report, titled ‘2020 ESG Manager Survey – Turning up the Volume’, questioned 400 asset managers globally across asset classes about how they are combining ESG factors into their investment activities.

The report also points to signs of asset managers combining externally available ESG data with their internally produced ESG metrics in order to make informed decisions. Specifically, 46% of respondents rely primarily on primarily on internally produced quantitative data, while 35% stated they relied predominantly on externally produced quantitative data.

For fixed income and equity, more firms are using a mix of sources, with sole data-use approaches declining. In equity, sole use of external data sources saw a decline from 17% in 2019 to 9% in 2020. Similarly, in the case of fixed income, sole reliance on internal data sources reduced to single digits, from 16% in 2019 to 7% in 2020. Reliance only on internal data roughly halved.

In private markets, there appears to be more use of external data sources this year, with firms relying solely on internal data sources dropping from 42% in 2019 down to 9%.

Overall, governance remains a critical consideration for asset managers, with 82% of respondents identifying this as the ESG factor with the most impact on their investment decisions. However, environmental and social issues are becoming more pronounced in asset managers’ thinking, with this year’s survey showing a four percentage point increase in the number of managers identifying environmental considerations as the most significant factor.

In terms of resourcing, 43% of respondents said they employed dedicated ESG professionals spending more than 90% of their time on ESG-specific analysis, up three percentage points on 2019. In Continental Europe, 90% of respondents claimed to have dedicated ESG professionals, compared with 68% last year.

The report also highlighted an increase in active engagement among fixed income-focused managers. A total of 92% of bondholders said they regularly engage with underlying companies, while just under four in ten said they hold regular meetings with management that always include ESG discussions. A total of 57% of equity managers said they had voted against management proposals in the previous 12 months.

“The fund management industry continues to embrace ESG integration, even amid pandemic-related challenges and volatility. They are seeking better ESG information, deeper resources, broader consideration within investment processes and clearer regulatory standards,” said Yoshie Phillips, Director of Investment Research, Global Fixed Income, Russell Investments.

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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