Asset owner pressure pays off as more managers make climate a priority
A growing number of managers are increasingly incorporating climate factors in their investment strategies, primarily as a result of pressure from asset owners and other institutional investors.
In fact, less than one in ten now say green investment considerations are not a factor in their strategic decisions, down from 22% only a year ago.
Consequently, 75% of managers are expanding their ESG teams, according to new research shared with Net Zero Investor.
The overall results of the research show that a green wind is blowing through the asset management space, as "ESG practices within asset management firms are rapidly evolving," the study by Russell Investments showed.
The researchers stressed that "employment trends reflect a rising focus on sustainable investing, as momentum continues toward net zero initiatives and reporting on ESG metrics and diversity increases."
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The survey, which featured responses from 169 asset managers globally that represent $20 trillion in assets under management, further found that managers are paying more attention to net zero and climate considerations due to more active engagement and pressure from asset owner clients and other institutional investors.
“As the industry continues to focus on responsible investing practices, active managers from all major asset classes are increasingly incorporating net zero considerations into their investment processes and hiring for ESG-related roles,” said Kris Tomasovic Nelson, senior director and head of ESG Investment Management at Russell Investments.
London-based Nelson added that she observed "a rising emphasis on active ownership as an investment tool; indeed, it emerged in his survey as the number one ESG information source."
She said it is "most striking that this year only 7% of respondents said that ESG factors do not drive investment decisions, markedly down from the 22% recorded in 2021."
“Climate risk is at the forefront of investors’ concerns, and we expect ESG to become further rooted in the investment landscape.”
Regulation
Nelson further said there is a "clear regulatory push" taking place within the industry.
"There is a rising demand for ESG-specific compliance due to increasing regulatory requirements, primarily in the UK and Europe," she explained.
Other factors that drive managers increasingly towards net zero-influenced decisions are the need to reduce risks (26%), driving positive returns (19%), governance concerns (19%) and social risks (15%).
"They prominently shape investment choices," Nelson stated.
She also said that ESG metric reporting is rapidly increasing with 66% of managers reporting ESG metrics for all funds, an increase from 59% in 2022.
Carbon emissions (56%) stood as the top metric, followed by diversity statistics which saw a rise at 24%, up from 19% last year.
Challenges
Managers globally noted the complexity of integrating ESG information due to diverse client interests.
Only US managers cited negative performance repercussions, reflecting ongoing debates on financial materiality in the country.
“Key challenges around ESG integration persist, such as the availability of data, lack of standardized reporting for corporations, and meeting diverse client needs,” Nelson summarised.
“Nevertheless, fewer managers are reporting that ESG considerations do not affect their investment decisions. There is an upswing in commitments to responsible investing reporting frameworks and initiatives, and ESG has firmly established itself as a lasting force in the investment landscape," she concluded.
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