Almost half (49 percent) of investors say a lack of robust ESG data is ‘holding back’ their organization’s further adoption of ESG, according to a new survey of more than 1,000 investors across 16 countries.
Capital Group’s inaugural ESG Global Study 2021 covers 1,040 global institutional and wholesale investors, including pension funds, family offices and insurance companies, as well as funds of funds, retail/private banks and financial advisers.
Three quarters of those surveyed use active investment decisions to ensure ESG factors are integrated into their funds and more than two thirds (67 percent) say integration is their preferred ESG implementation strategy, according to Capital Group. But issues around ESG data are holding investors back from further integration, it seems.
A lack of consistency in ESG scores from ratings firms is ‘a stumbling block’ when incorporating research data into the investment decision-making process for half (53 percent) of investors globally. Capital Group adds that more than a quarter of respondents (27 percent) rank ‘difficulties accessing the information I need’ as the leading challenge they face.
‘One of the things that struck me is that the lack of robust ESG data is right up there with concerns about sacrificing investment returns as the biggest barrier to ESG adoption,’ Jessica Ground, Capital Group’s global head of ESG, says in a statement on the survey’s key findings.
‘Accessing ESG information and data is identified as the primary challenge of ESG implementation. A lack of consistency in ESG scores is also a stumbling block. While there is more ESG information available than ever before, investors are frustrated by conflicting definitions of what is considered ‘good’ in the ESG space.
‘They are calling for greater consistency and accessibility. This concern around data also underlines the importance of working with an asset manager that has deep fundamental research capabilities and that can look beyond the data and assess what’s really going on.’
In fact, when asked what would enhance their organization’s focus on sustainable investing, nearly half of investors (49 percent) highlight the need for greater transparency and consistency in fund reporting frameworks.
As well as looking at the barriers impacting ESG adoption, researchers asked investors how those challenges could be overcome. Forty-three percent cite ‘consistent reporting’ as the top driver for better ESG analysis and implementation. This is followed by greater cross-industry analysis of ESG factors in portfolios (37 percent), while 34 percent of investors say they would appreciate automated analysis tools such as artificial intelligence.
Researchers further asked how asset managers can most effectively engage with companies on ESG, with regular corporate access coming out on top. Almost half (46 percent) cite the importance of regular meetings with senior executives at the companies they invest in, while almost the same number point to exercising voting rights and monitoring and reporting to assess outcomes (both 45 percent) as key engagement tools.
Ground also notes the preference for active management. ‘Three quarters of those surveyed use active funds to integrate ESG – more than double the proportion using passive funds and trackers,’ she says. ‘Rather than investing in funds that merely screen out unethical sectors, investors want managers to identify and manage ESG risks and opportunities through bottom-up security selection and fundamental analysis.’