ESG Affirmations and Surprises: Asset Managers Look to the Future

The development of ESG investing within the world asset administration group continues to be a supply of fascination and a lightning rod for dialog, engagement, and innovation. Because the “Index Industry Association 2023 ESG Survey” demonstrates, ESG concerns are reworking how asset managers strategy their jobs and serve their purchasers.

The primary IIA ESG World Asset Supervisor Survey in 2021 helped verify that ESG concerns are right here to remain. Of the 300 asset managers queried, 85% anticipated such standards to play a larger function in portfolio building and administration within the coming decade. I outlined the important thing anticipated drivers of this development in “ESG: Full Pace Forward, with GPS” and unpacked the expansion prospects in additional element with insights from the second IIA ESG survey in 2022, honing in on how ESG implementation had expanded past equities and into fastened revenue.

Quick ahead to 2023 and the IIA’s third annual ESG survey of worldwide asset managers reveals much more affirmations of ESG standards — together with fairly just a few surprises.

On one degree, the newest world ESG survey emphasizes the worldwide asset administration group’s sturdy dedication to ESG methods even within the face of financial volatility and political and geopolitical friction. On one other degree, the survey illuminates how the group has embraced innovation in instituting ESG methods on behalf of its purchasers.

Environmental Elements That Are Most Essential to Corporations’ ESG Methods, 2023

Chart showing survey reponses indicating the Environmental Factors That Are Most Important to Companies' ESG Strategies, 2023

Base: Respondents who implement ESG standards of their portfolios: US (n72), UK (n76), France (n58), Germany (n66)

Certainly, asset managers are pondering extra broadly and creatively round ESG components, in accordance with the survey. From an environmental standpoint, whereas local weather remains to be king — 75% of asset managers prioritize the “E” over the “S” and the “G” — the scope of climate-related matters that concern asset managers has widened. For the primary time, carbon emissions are not the highest precedence.

On the identical time, social in addition to governance components are far more top-of-mind. But, whereas world asset managers perceive the necessity to preserve sharpening their give attention to ESG-related funding points and increasing the depth and breadth of their evaluation, additionally they know they want higher information and metrics. Over half (54%) of the asset managers surveyed say that evaluating the social and governance efficiency of firms is a problem and 56% say that maintaining with altering societal views and associated expectations round ESG points is troublesome.

Applied sciences That Asset Managers Anticipate to Have the Largest Influence on ESG Measurement and Reporting over the Subsequent Two Years, 2023

Bar chart showing Technologies That Asset Managers Expect to Have the Biggest Impact on ESG Measurement and Reporting over the Next Two Years, 2023

Base: All respondents (n300)

World asset managers are additionally pondering extra creatively about ESG implementation and additional reframing the asset class dialogue. Although ESG implementation’s continued growth into fastened revenue was anticipated given earlier traits, the fast rise of ESG standards in commodities was extra stunning. Simply 37% of survey respondents stated they utilized ESG consideration to the asset class in 2021. This yr, 62% stated they did.

However that’s not the 2023 survey’s largest revelation. To my thoughts, the important thing takeaway is the function asset managers anticipate rising applied sciences to play in increasing and enhancing ESG metrics, information, and evaluation. Asset managers are nicely conscious of the present challenges. An absence of knowledge standardization throughout markets, inadequate quantitative information, and a dearth of agreed-upon rankings and strategies are nothing new. However survey respondents consider massive information analytics, cloud computing, and different applied sciences will assist handle these deficits and enhance the standard, scope, and content material of ESG information and metrics. In truth, of the asset managers surveyed, 48% anticipate synthetic intelligence (AI) and machine studying can have probably the most affect on ESG measurement and reporting over the subsequent two years.

Asset managers acknowledge how troublesome and unsure ESG implementation is at this time. However they see huge technologically pushed enhancements on the horizon, which means that ESG integration remains to be in its early phases, with far more to return.

That is the seventh installment of a sequence from the Index Industry Association (IIA). The IIA celebrated its tenth anniversary in 2022. For extra info, visit the IIA website.

In case you preferred this put up, don’t neglect to subscribe to Enterprising Investor.

All posts are the opinion of the writer. As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially replicate the views of CFA Institute or the writer’s employer.

Skilled Studying for CFA Institute Members

CFA Institute members are empowered to self-determine and self-report skilled studying (PL) credit earned, together with content material on Enterprising Investor. Members can report credit simply utilizing their online PL tracker.