Asset managers’ primary motivation for ESG integration is client demand, but the quality of public data poses challenges, according to an Index Industry Association (IIA) report.
The report showcases that 85 percent of respondents say ESG plays a vital role in their firm’s overall investment offering/strategy. The report is based a survey of 300 respondents at asset management firms in the US, the UK, France and Germany. It finds that around 50 percent of respondents in the US and Germany consider ESG a very high priority.
Respondents cite client demand (54 percent) as the biggest reason why ESG is being adopted by asset management firms. Other factors include the desire for increased returns (44 percent) and a need for diversification (42 percent).
Respondents say the major challenge they face in terms of ESG is the lack of transparency/greater public corporate disclosure of companies’ ESG activities. In addition, 35 percent of respondents outline a lack of quantitative data as a ‘moderate challenge’.
Another issue the sector is having problems with is ESG regulation. ‘Fund managers also point to a significant regulatory disconnect hampering innovation in the sector,’ say the authors of the report.
The majority of respondents (56 percent) say they find it difficult to keep up with regulation. Additionally, 65 percent say regulators do not pay enough attention to the views of the asset management industry when it comes to issues surrounding ESG.
Incorporating ESG information into investment decisions is far more popular in Europe than in the US. The report authors state: ‘The lion’s share of ESG funds (79 percent) still goes to European portfolios, with the US lagging some way behind with a share of just under 12 percent.’
Asked why this is the case, respondents point to regulatory or legal uncertainty (45 percent), lack of end-investor interest (45 percent) and access to right-sized ESG products (43 percent).
Over the next five years, 87 percent of the report’s respondents suggest ESG is going to become a lot more important.
‘The asset management companies we surveyed expect the proportion of ESG elements in their portfolios to climb from an average of 26.7 percent 12 months from now to 43.6 percent in five years’ time,’ the report authors write.