ESG Affirmations and Surprises: Asset Managers Look to the Future

The development of ESG investing within the international 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 remodeling how asset managers strategy their jobs and serve their purchasers.

The primary IIA ESG International 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 higher function in portfolio development and administration within the coming decade. I outlined the important thing anticipated drivers of this progress 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 earnings.

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 a number of surprises.

On one degree, the most recent international 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 Necessary to Firms’ ESG Methods, 2023

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

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

On the identical time, social in addition to governance elements are rather more top-of-mind. But, whereas international asset managers perceive the necessity to maintain sharpening their deal with ESG-related funding points and increasing the depth and breadth of their evaluation, additionally they know they want higher knowledge and metrics. Over half (54%) of the asset managers surveyed say that evaluating the social and governance efficiency of corporations is a problem and 56% say that maintaining with altering societal views and associated expectations round ESG points is tough.

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

Base: All respondents (n300)

International asset managers are additionally considering extra creatively about ESG implementation and additional reframing the asset class dialogue. Although ESG implementation’s continued enlargement into fastened earnings was anticipated given earlier tendencies, the fast rise of ESG standards in commodities was extra stunning. Simply 37% of survey respondents mentioned they utilized ESG consideration to the asset class in 2021. This 12 months, 62% mentioned they did.

However that isn’t the 2023 survey’s greatest revelation. To my thoughts, the important thing takeaway is the function asset managers count on rising applied sciences to play in increasing and bettering ESG metrics, knowledge, and evaluation. Asset managers are effectively conscious of the present challenges. An absence of knowledge standardization throughout markets, inadequate quantitative knowledge, and a dearth of agreed-upon scores and strategies are nothing new. However survey respondents imagine large knowledge analytics, cloud computing, and different applied sciences will assist handle these deficits and enhance the standard, scope, and content material of ESG knowledge and metrics. In reality, of the asset managers surveyed, 48% count on synthetic intelligence (AI) and machine studying may have essentially the most affect on ESG measurement and reporting over the following two years.

Asset managers acknowledge how tough and unsure ESG implementation is as we speak. However they see huge technologically pushed enhancements on the horizon, which means that ESG integration continues to be in its early levels, with rather more to come back.

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

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

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